What Florida Homeowners Need to Know About Mortgage Assignments

05 Thursday Dec 2013

Posted by BNG in Affirmative Defenses, Banks and Lenders, Case Laws, Case Study, Foreclosure Defense, Fraud, Judicial States, MERS, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Article 9 of the Japanese Constitution, Assignment (law), Business, Florida Supreme Court, Promissory note, Securitization, UCC, Uniform Commercial Code

Today, a mortgage originator might make hundreds of loans and assign them as collateral to borrow money from a bank in a “mortgage warehouse facility.” The borrowed money is used to originate more mortgages. A mortgage warehouse is often only temporary, so the mortgages might be transferred from one facility to another. When the mortgage originator has a sufficiently large pool of mortgages, it may permanently “securitize” them by assigning them to a newly formed company that issues securities that are then sold to investors. In the end, the company owns the mortgages, and the investors receive payments on the securities which are based on the collections from the mortgage pool. In this manner, mortgages are effectively packaged as securities, which can more easily be traded than individual mortgages — hence the name “securitization.”

The recorded form assignment I prepared as a young associate is not well-suited to use in these transactions. Because transactions involve the assignment of hundreds or even thousands of mortgages, there is a temptation to skip the step of recording an assignment in the public records, particularly when the assignment is only a temporary collateral assignment. Transactions sometimes take the form of nothing more than an unrecorded pledge of the mortgages in bulk to the bank, together with delivery of the original notes to the bank for perfection. In many instances, even the task of holding possession of the notes is outsourced to a bailee who holds the notes for the bank’s benefit. The mortgages might be transferred many times by unrecorded assignment in bulk without physically moving the notes, but with the bailee simply signing a receipt changing the name of the lender for whom it holds the notes.

The attorneys who pioneered these transactions were comforted that the structure would work by legal conclusions they drew from Article 9 of the Uniform Commercial Code (UCC), the Official Comments to the UCC (Comments),² and favorable case law.³ The law was clear enough that attorneys were able to give legal opinions concerning perfection, but as the amount of securitized mortgages reached into the trillions of dollars, the uniform law commissioners decided to revisit Article 9 and make it safe for securitizations by officially sanctioning these practices.

It is useful to observe the simplicity of a mortgage assignment in its purest form. F.S. §673.2031(1) (2010), governing negotiable instruments, states that “[a]n instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.” Even before the UCC, the Florida Supreme Court ruled that a mortgage can be transferred without a written assignment simply by delivering the note with intent to assign it.⁴ So at its core, between the parties to the assignment, assigning a mortgage is very much like selling a used lawn mower. What makes it more complex in practice is the potential for disputes and the precautions that must be taken to protect the parties. There are a number of contexts in which mortgage assignments might be considered:

1) The rights of a mortgage assignor and assignee vis-a-vis each other;

2) The rights of a mortgage assignee relative to the rights of its creditors, including lien creditors and bankruptcy trustees;

3) The rights of a mortgage assignee relative to the rights of a subsequent assignee;

4) The obligation of a mortgagor to make payment to the mortgage holder;

5) The right of the mortgage holder to foreclose in the event of default; and

6) The rights of a person acquiring an interest in the real estate.

The drafters of Article 9 focused primarily on problems one through three because these related to the issues that most concerned securitization participants and their attorneys. The rules the drafters set up treated mortgages as personal property that could be transferred without regard to the real estate records.⁵ Article 9 extends to sales of promissory notes, as well as assignments for security purposes.⁶ Although Article 9 recognizes some differences between collateral assignments and sales of notes, the UCC does not provide rules to distinguish a collateral assignment from an absolute assignment.⁷ Thus, the term “secured party” includes a collateral assignee as well as a purchaser of promissory notes,⁸ and the term “debtor” includes both an assignor of promissory notes for security and a seller of promissory notes.⁹

Problem 1 — Attachment
Article 3 governs the transfer of negotiable instruments. Article 9 governs security interests in and sales of both negotiable and nonnegotiable promissory notes. Thus, there is some overlap. The principal effect of extending Article 9 to sales of promissory notes was to apply the perfection and priority rules to those transactions.

F.S. §679.2031 (2010) determines when an assignment “attaches” or in other words, when it becomes effective between the assignor and assignee. That section requires that a) value be given; b) the debtor has rights in the collateral; and c) either the debtor has “authenticated a security agreement” describing the collateral or the secured party is in possession of the collateral pursuant to the security agreement.¹⁰

In the case of an assignment of a promissory note, the promissory note is the “collateral”¹¹ and the assignment is the “security agreement.”¹² Thus, the assignment becomes enforceable between the assignor and assignee when value is given, the assignor has assignable rights in the promissory note, and the assignor has either executed a written assignment describing the promissory note or the assignee has taken possession pursuant to the agreement of the assignor to assign the promissory note. Attachment of the security interest to the promissory note also constitutes attachment of the security interest to the mortgage, effectively adopting the pre-Article 9 case law that the mortgage follows the promissory note.¹³

A written assignment of the promissory note will satisfy the “security agreement” requirement whether the assignment is made pursuant to a sale or for the purpose of collateral. Similarly, an indorsement pursuant to Article 3 should satisfy that requirement.¹⁴ However, the implication of F.S. §§673.2031 and 679.2031 (2010), and of Johns v. Gillian, 184 So. 140 (Fla. 1938), is that the security agreement need not be in writing, so long as there is intent to assign and the promissory note is delivered to the assignee.¹⁵

Problem 2 — Perfection
Third parties lacking notice are not bound merely because the assignor and assignee have agreed among themselves that the mortgage has been transferred to the assignee. To protect the assignee from claims of third parties dealing with the assignor, the assignment must be perfected. Perfection of the security interest in the promissory note operates to perfect a security interest in the mortgage.¹⁶ The assignee may perfect its rights against the conflicting rights of a lien creditor (including a judgment lien holder, bankruptcy trustee, or receiver)¹⁷ by taking possession of the original promissory note¹⁸ or by filing a financing statement in the applicable filing office¹⁹ (which for a debtor located in Florida is the Florida Secured Transactions Registry).²⁰ Possession may be effected by means of a bailee, provided that the bailee authenticates a writing acknowledging that it holds possession for the benefit of the secured party.²¹ However, not all modes of perfection are equal. As discussed below in connection with priority, possession of the promissory note generally offers more protection than filing a financing statement. All modes of perfection, however, provide protection against the rights of a subsequent lien creditor.²²

In the case of a sale of the promissory note (as opposed to a collateral assignment), perfection is automatic upon attachment.²³ Thus, neither possession nor filing is needed to perfect against the rights of subsequent lien creditors, provided that the assignment is a true sale rather than a secured transaction. However, for several reasons, absolute assignees often perfect by possession of the promissory note and/or filing, even though perfection is automatic in the case of a sale.²⁴

Problem 3 — Priority
The question of whether an assignee prevails over another assignee is one of priority. Pursuant to F.S. §679.322(1)(a) (2010), if both assignments are perfected, then priority is generally determined by the time of filing or perfection. Perfection is accomplished by filing automatically in the case of sales, or by possession of the promissory note. However, §679.322(3) refers to F.S. §679.330 (2010), which states in part: “[A] purchaser of an instrument has priority over a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.”

Regardless of whether the assignee receives absolute ownership pursuant to a true sale or merely an assignment for the purpose of security, the assignee is considered a “purchaser.”²⁵ If the second assignee takes possession for value in good faith and without knowledge that it violates the first assignee’s rights, then the second assignee takes priority over an assignment perfected without possession. Mere filing of a financing statement by the first assignee (and even actual knowledge by the second assignee of such a filing) is not enough to charge the second assignee with a lack of good faith or knowledge that the second assignment violated the first assignee’s rights.²⁶ It is not clear precisely what facts might disqualify the assignee in possession from relying on §679.330(4) for its priority, but F.S. §671.201(20) (2010) provides a general definition of “good faith,” which requires honesty in fact (an actual knowledge standard), and observance of reasonable commercial standards of fair dealing. Given this nebulous standard, the party who perfects by filing or automatically should assume that it will not be protected against a subsequent assignee who takes possession.

The foregoing principles are demonstrated in American Bank of the South v. Rothenberg, 598 So. 2d 289 (Fla. 5th DCA 1992). In that case, the bank took a security interest in a note and mortgage, perfected by possession. The assignor then sold the same note to a second assignee. The second assignee recorded his assignment in the public records before the bank did, but received only a copy of the note. The court held that though he recorded first, the second assignee lost because the bank had possession. Although the case did not involve a UCC filing by the losing assignee, that would not have changed the result since possession generally trumps a UCC filing. In fact, because the mortgage was sold (rather than assigned as collateral), the second assignee’s interest was perfected automatically. However, like filing, automatic perfection does not generally protect the assignee from a conflicting assignment perfected by possession.

If the assignment is intended only as secondary collateral on unspecific assets, then possibly the assignee would be satisfied with such ethereal rights as are created by merely filing, but if the assignee is giving new value to acquire specific mortgages, then greater protection is usually required — namely, possession of the promissory note.

Problem 4 — Who Does the Mortgagor Pay?
Comment 6 to UCC §9-308 explains that Article 3 (not Article 9) dictates who the maker of a negotiable instrument must pay. F.S. §673.6021(1) (2010) states that with limited exceptions (knowledge of injunction or theft, etc.), the instrument is discharged upon payment to “a person entitled to enforce the instrument.”

F.S. §673.3011 (2010) states:

The term “person entitled to enforce” an instrument means:

(1) The holder of the instrument;

(2) A nonholder in possession of the instrument who has the rights of a holder; or

(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to s. 673.3091 or s. 673.4181(4).

A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

In general, it is the “holder” who is entitled to enforce the instrument. “The person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession” is a “holder.”²⁷ In some instances, a nonholder may enforce the instrument. The comment to UCC §3-301 states that a “person who under applicable law is a successor to the holder or otherwise acquires the holder’s rights” can enforce the instrument under subsection (2), even though not a holder. This would include an assignee from the holder who for some reason did not become a holder, perhaps because it did not receive a proper indorsement.²⁸ Subsection (3) would include an assignee who is not a holder because the instrument was lost.

One might wonder whether these provisions make any sense. The mortgagor cannot be expected to ascertain the holder by demanding exhibition of the promissory note whenever it makes a payment,²⁹ nor would the lender likely accommodate such a demand, even if made. Usually, the note expressly waives presentment, so that the original need not be exhibited on demand for payment.³⁰ In the real world, the mortgagor simply pays whomever the note says should be paid (often a servicer), until the mortgagor receives a notice to pay someone else. The law of contract and agency will often lead a court to give effect to payments made in this manner, despite Article 3.³¹ Nevertheless, unless the parties have expressly or impliedly agreed otherwise, Article 3 requires the mortgagor to ascertain the status of the payee as holder by demanding exhibition of the promissory note, and the holder must comply as a condition for demanding payment.

Article 3 does not control payment of nonnegotiable notes.³² The common law of contract generally applies. The common law rule is that payment of a nonnegotiable promissory note can be made to the payee without demanding delivery of the original promissory note, and will be effective so long as the maker does not have notice that the payee has transferred the promissory note to a third person.³³ In other words, the result is not very different from the “real world” practice of making payment on a negotiable promissory note, as described above.

Problem 5 — Who Has Standing to Foreclose the Mortgage?
The provisions of Article 3 speak in terms of who is entitled to “enforce” an instrument. Thus, the solution to problem four must also be the solution to problem five. Unlike problem four, however, there are a number of reported cases concerning standing in foreclosures that must be considered. It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.³⁴ Further, an agent for the holder can sue to foreclose.³⁵ The holder of a collateral assignment has sufficient standing to foreclose.³⁶

Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.³⁷ Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.³⁸

In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.³⁹

When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.⁴⁰

In the case of a defaulting mortgagor, someone presumably has a right to foreclose. Excessively strict standing requirements might result in a windfall to the mortgagor at the expense of the lender. At the same time, courts must ensure that the mortgagor is not subjected to double liability. A review of the cases shows that while there are a few cases in which mortgagors paid the wrong party and were later held liable to the true holder, there is a dearth of cases in Florida where a mortgagor was foreclosed by one putative mortgagee, and later found liable to another who was the true holder. The lack of such nightmare cases is a testament to the fine job courts have done in enforcing the standing requirements, but it also begs the question whether the risk of double liability may be overstated. Given the long foreclosure process in Florida, a defaulting borrower is unlikely to remain unaware of conflicting demands long enough to complete a foreclosure. It seems that in such an event, either the borrower must have ignored conflicting demands, or one of the putative mortgagees sat on its rights. While both are plausible scenarios, they each present clear equities that should assist a court in positioning the loss.

Problem 6 — Real Estate Transactions
The UCC deals with problems one through five, but the Article 9 Comments expressly disclaim intent to deal with problem six because it is an issue of real estate law beyond Article 9’s scope.⁴¹ In Florida, a mortgage is not an interest in real estate, but rather personal property.⁴² On the other hand, the statutes permit persons taking an interest in real estate to rely on the real estate records to determine ownership of a mortgage without regard to the UCC. F.S. §701.02 (2010) says in part:

701.02. Assignment not effectual against creditors unless recorded and indicated in title of document; applicability

(1) An assignment of a mortgage upon real property or of any interest therein, is not good or effectual in law or equity, against creditors or subsequent purchasers, for a valuable consideration, and without notice, unless the assignment is contained in a document that, in its title, indicates an assignment of mortgage and is recorded according to law.

(2) This section also applies to assignments of mortgages resulting from transfers of all or any part or parts of the debt, note or notes secured by mortgage, and none of same is effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration without notice, unless a duly executed assignment be recorded according to law.

*****

(4) Notwithstanding subsections (1), (2), and (3) governing the assignment of mortgages, chapters 670-680 of the Uniform Commercial Code of this state govern the attachment and perfection of a security interest in a mortgage upon real property and in a promissory note or other right to payment or performance secured by that mortgage. The assignment of such a mortgage need not be recorded under this section for purposes of attachment or perfection of a security interest in the mortgage under the Uniform Commercial Code.

(5) Notwithstanding subsection (4), a creditor or subsequent purchaser of real property or any interest therein, for valuable consideration and without notice, is entitled to rely on a full or partial release, discharge, consent, joinder, subordination, satisfaction, or assignment of a mortgage upon such property made by the mortgagee of record, without regard to the filing of any Uniform Commercial Code financing statement that purports to perfect a security interest in the mortgage or in a promissory note or other right to payment or performance secured by the mortgage, and the filing of any such financing statement does not constitute notice for the purposes of this section. For the purposes of this subsection, the term “mortgagee of record” means the person named as the mortgagee in the recorded mortgage or, if an assignment of the mortgage has been recorded in accordance with this section, the term “mortgagee of record” means the assignee named in the recorded assignment.

One can accept that a person taking an interest in real estate should be charged with notice only of what appears from the real estate records. However, the statute seems overly broad in that it says an assignment must be recorded to be effectual against creditors and purchasers. Subsections (1) and (2) seem to contradict the rules of Article 9, which permit perfection against lien creditors merely by taking possession of the note or filing a financing statement. Also, under Article 9, a good faith purchaser with possession takes free of a prior assignment, even if recorded. Although subsection (4) says the statute does not alter the perfection requirements of Article 9, what does the statute mean if not that an unrecorded assignment of mortgage is not enforceable against creditors of the assignor?

One might argue that §701.02 means that an absolute assignment must be recorded in the real estate records, while a collateral assignment need not be recorded.⁴³ Subsection (4) discusses perfection of a “security interest,” but it does not specifically mention a sale of the mortgage.However, the term “security interest” in the UCC includes an assignment pursuant to a sale,⁴⁴ and the term “assignment” in subsections (1) and (2) is not, on its face or in the case law, limited to absolute assignments.⁴⁵ Such a limitation would undercut the §701.02 protections given to real estate purchasers (particularly considering the case law holding that a collateral assignee in possession may enforce the mortgage). Likewise, requiring a sale to be recorded in the real estate records for validity against subsequent purchasers from the mortgagee would undermine the protections for purchasers of mortgages under the UCC. Clearly, the statute says that an assignment need not be recorded to be perfected under the UCC, but that does not necessarily mean that an unrecorded assignment will be effective against a person taking an interest in the realty in reliance on the real estate records.

Perhaps the term “creditors” refers only to creditors of the fee title owner of the land — not to creditors of the mortgage assignor. There is no need to protect creditors of a mortgage assignor with this statute. The priority of a lien creditor of the assignor is adequately addressed by Article 9. By contrast, creditors of the fee title owner are not protected by Article 9 and might rely on the real estate records in acquiring an interest in or lien on the real estate.⁴⁶ Also, the subsection (5) phrase “purchaser of real property” supports that interpretation. There is no mention of purchasers of the mortgage.

If that is the intent of the statute, then the unqualified use of the term “creditors” is unfortunate. The statute should say the protection extends to creditors, purchasers, or other persons acquiring an interest in the real property, but not to persons acquiring a mortgage from the mortgagee (whose rights are determined instead by the UCC). Even though it could be clearer, the foregoing interpretation is not plainly refuted by the statutory language. Moreover, there is case law support. In American Bank of the South v. Rothenberg, 598 So. 2d 289 (Fla. 5th DCA 1992), also discussed above, the bank received a collateral assignment and took possession of the note. However, the note was sold to a second assignee who recorded first in the real estate records and argued that §701.02 gave him better title. The court disagreed, stating:

The confusion in this case arises from the failure of both parties to recognize that section 701.02…is inapplicable. This case, involving as it does the competing interests of successive assignees of a note and mortgage, is governed by negotiable instruments law, not the recording statute. Section 701.02 was enacted to protect a creditor or subsequent purchaser of land who has relied on the record satisfaction of a prior mortgage, which satisfaction was executed by the mortgagee after he made an unrecorded assignment of the same mortgage. Manufacturers’ Trust Co. v. People’s Holding Co., 110 Fla. 451, 149 So. 5 (Fla. 1933).⁴⁷

The court’s reading is unduly narrow in that §701.02 protects more than just persons relying on mortgage satisfactions, but the idea that it governs only real estate transactions seems correct.⁴⁸

However, some courts have confused the rules applicable to problem six with those applicable to problems one through five. In JP Morgan Chase v. New Millennial, LC, 6 So. 3d 681 (Fla. 2d DCA 2009), rev. dism., 10 So. 3d 632 (Fla. 2009), for example, the closing agent in a real estate transaction telephoned AmSouth Bank concerning two mortgages that it appeared to own of record and was told they had been paid. AmSouth Bank faxed a printout to the closing agent showing a balance of $0 and stating “PD OFF.” In fact, AmSouth Bank had merely sold the loans to JP Morgan, which failed to record an assignment. The transaction closed in reliance on the fax. Later, JP Morgan sought to foreclose, and the purchaser argued that JP Morgan’s unrecorded assignment was ineffective under §701.02. JP Morgan argued that §701.02 protected only assignees of the mortgagee, not grantees of the land owner, and the court agreed.⁴⁹ In other words, the court’s interpretation was exactly opposite that in American Bank of the South. Yet, the idea that persons acquiring the land may rely on §701.02 seems required by the statute and the case law.⁵⁰

Although JP Morgan Chase’sinterpretation of §701.02 seems wrong,one might argue the case was correct for another reason. The court said the closing agent never received a satisfaction, but simply relied on the fax. Although F.S. §701.04 (2010) permits the purchaser to rely on an estoppel letter, the court said the fax did not qualify for that protection. Arguably, the true holding of JP Morgan Chase is that the party relying on the real estate records must obtain a satisfaction, and informal assurances are inadequate. Nevertheless, JP Morgan Chase will add to the confusion until the Florida Supreme Court rules decisively on the meaning of §701.02.

Even if one accepts the interpretation in American Bank of the South, one must admit there is inherent tension between §701.02 and Article 9. The tension is demonstrated in Rucker v. State Exchange Bank, 355 So. 2d 171 (Fla. 1st DCA 1978). In that case, South 41 Corp. gave a mortgage to Harrell and deeded the land to Rucker. Harrell assigned the mortgage to the bank as collateral, which recorded the assignment, but did not notify Rucker. Rucker then paid the mortgage to Harrell. After not receiving payment, the bank foreclosed on Rucker. On appeal, Rucker argued the collateral assignment was not perfected under Article 9. The court erroneously said that Article 9 does not govern a collateral assignment, but came to an arguably correct result, affirming the judgment of foreclosure.

A threshold issue not discussed was whether Rucker, having acquired the real estate from South 41 Corp., was entitled to rely on the real estate records, or whether she simply paid the mortgage pursuant to the UCC. Clearly, Rucker did acquire the real estate, but that was months earlier, so perhaps by the time of payment, the real estate records were no longer relevant.

The Rucker court seemed to rely on both problems one through five and problem six rules. The court said that Rucker did not demand surrender of the mortgage,⁵¹ which is irrelevant under §701.02. However, the court also relied on the assignment recorded in the real estate records, which is not important to problems one through five, but is important to problem six. Even though the court did not clearly state which rules applied, it came to the correct result. Rucker lost because she did not comply with either set of rules. She would have become aware of the assignment to the bank if she had checked the real estate records, and she would have (presumably) discovered that Harrell did not have the note, if she had demanded surrender of the note. The court did not discuss when it is that a person acquiring an interest in the land (entitled to rely on the real estate records) ceases to be such a person and becomes instead a person acquiring or paying the promissory note who must follow the UCC, but the case shows the issue will inevitably arise, creating tension between §701.02 and the UCC.

Summarizing, the UCC attempts to solve problems one through five and §701.02 attempts to solve problem six. There is some overlap and potential for conflict, causing confusion in the cases. Courts should interpret those statutes so that they are consistent, limiting the protection of §701.02 to persons taking an interest in the real estate, and the protection of the UCC to persons taking an interest in the promissory note and mortgage.

Conclusion
Ironically, while the drafters of Article 9 sought to make mortgage assignments as simple and foolproof as possible, the handling of mortgage assignments is now at the center of the foreclosure crisis that has gripped the nation’s financial system. To be fair, the changes to Article 9 did not really cause the problem. In fact, the changes mostly codified existing case law and served to lessen the chaos by eliminating uncertainty. However, the revisions to Article 9 fostered confidence that the “simple, foolproof” rules intended to protect parties’ rights in mortgages would in fact do so. The false sense of certainty led to an increase in the number of transactions accomplished with minimal documentation designed to meet the attachment and perfection requirements of Article 9, but not the standing requirements in foreclosures. Moreover, missing or irregular indorsements or lost instruments compounded the problem by leaving gaps even in this minimal documentation. The result was a deluge of disputed cases fortuitously stopping or delaying foreclosures while the mortgagees struggled to reconstruct a document trail proving ownership.

Despite the sloppy practices of the mortgage industry, attorneys practicing in this area should not find themselves on the losing end of a court decision holding that their client does not have standing to foreclose. The question of whether the client has standing should be addressed before filing the case. If the documentation is inadequate, then missing documents should be located, or if necessary, re-executed before filing suit. An attorney unavoidably faced with ambiguous documentation might take comfort that, as shown by Johns v. Gillian and the UCC, Florida law concerning standing is not very demanding. Nevertheless, the requirements for standing must be proved, and the attorney should determine before filing that these requirements can be met.

¹SeeFla. Stat. §673.2041 (2010).

²See National Bank of Sarasota v. Dugger, 335 So. 2d 859, 860-861 (Fla. 2d D.C.A. 1976), cert. den., 342 So. 2d 1101 (Fla. 1976) (citing Comments as interpretive guide).

³ Florida has long held an assignment of a note includes an assignment of the mortgage. See Taylor v. American Nat. Bank, 57 So. 678, 685 (Fla. 1912); First Nat. Bank of Quincy v. Guyton, 72 So. 460 (Fla. 1916); Collins v. W.C. Briggs, Inc., 123 So. 833 (Fla. 1929); Miami Mortgage & Guaranty Co. v. Drawdy, 127 So. 323 (Fla. 1930); and Warren v. Seminole Bond & Mortgage Co., 172 So. 696, 697 (Fla. 1937). Thus, a recorded assignment seemed surplusage. By contrast, a mortgage assignment without the note has been held ineffectual. Sobel v. Mutual Development, Inc., 313 So. 2d 77, 78 (Fla. 1st D.C.A. 1975).

⁴Johns v. Gillian, 184 So. 140, 143 (Fla. 1938).

⁵Fla. Stat. §679.1091(4)(k)(1) (2010) (Article 9 extends to a transfer of a lien in real property).

⁶Fla. Stat. §679.1091(1) (2010).

⁷See UCC §9-109, Comment 5.

⁸Fla. Stat. §679.1021(1)(sss) (2010).

⁹Fla. Stat. §679.1021(1)(bb) (2010).

¹⁰Fla. Stat. §679.2031(2) (2010).

¹¹Fla. Stat. §679.1021(1)(l) (2010).

¹²Fla. Stat. §679.1021(1)(ttt) (2010) and §671.201(38) (2010) (“security interest” includes the interest of a buyer of a promissory note).

¹³Fla. Stat. §679.2031(7) (2010).

¹⁴Fla. Stat. §673.2041(1) (2010), defining “indorsement.” Fla. Stat. §673.2011 (2010) requires an indorsement for a transferee to become a “holder,” if the instrument is payable to a specific person, but even a nonholder transferee may often enforce the instrument. SeeFla. Stat. §673.2031(2) (2010).

¹⁵ The delivery requirement has also been weakened by some cases. See Beaty v. Inlet Beach, 9 So. 2d 735 (Fla. 1942); Harmony Homes, Inc. v. United States, 936 F. Supp. 907, 913 (M.D. Fla. 1996), aff’d,124 F.3d 1299 (11th Cir. 1997).

¹⁶Fla. Stat. §679.3081(5) (2010).

¹⁷Fla. Stat. §679.1021(1)(zz) (2010).

¹⁸Fla. Stat. §679.3131(1) (2010). Florida law applies to a security interest perfected by possession if the promissory note is located in Florida. SeeFla. Stat. §679.3011(2) (2010).

¹⁹Fla. Stat. §679.3121(1) (2010) (perfection by filing where the collateral is instruments). The term “instrument” under Article 9 includes non-negotiable promissory notes, unlike the same term defined in Article 3. CompareFla. Stat. §679.1021(1)(uu) (2010) withFla. Stat. §673.1041(2) (2010), and see Comment 5(c) to UCC §9-102.

²⁰Fla. Stat. §679.5011(1)(b) (2010). A registered organization organized in Florida is deemed “located” in Florida. SeeFla. Stat. §679.3071(5) (2010).

²¹Fla. Stat. §679.3131(3) (2010).

²²Fla. Stat. §679.3171(1)(b) (2010) (security interest is junior to the rights of a person who became a lien creditor prior to perfection).

²³Fla. Stat. §679.3091(4) (2010). This is one of the few areas wherein collateral assignments and sales are different. Purchasers of promissory notes had not in the past been required to file financing statements, and the drafters of Article 9 wanted to continue that practice. See Comment 4 to UCC §9-309.

²⁴ First, the priority rules determine if the assignee prevails over another assignee, and possession is more protective than automatic perfection. Second, courts may find what appears to be a sale is actually security that cannot be perfected automatically. See, e.g., Torreyson v. Dutton, 198 So. 796 (Fla. 1940); Hulet v. Denison, 1 So. 2d 467 (Fla. 1941); Howard v. Goodspeed, 135 So. 294 (Fla. 1931). Also, the assignee usually wants possession to ensure standing to foreclose. See Abbott v. Penrith, 693 So. 2d 67 (Fla. 5th D.C.A. 1997); Pastore-Borroto Development, Inc. v. Marevista Apartments, M.B., Inc., 596 So. 2d 526 (Fla. 3d D.C.A. 1992); Figueredo v. Bank Espirito Santo, 537 So. 2d 1113 (Fla. 3d D.C.A. 1989).

²⁵See definitions of “purchase” and “purchaser” at Fla. Stat. §§671.201(32) and (33) (2010).

²⁶See Comment 7 to UCC §9-330 (“a purchaser who takes even with knowledge of the security interest qualifies for priority under subsection (d) if it takes without knowledge that the purchase violates the rights of the holder of the security interest”). Fla. Stat. §679.3171(2) (2010) seems to adopt a different rule, saying that a “buyer, other than a secured party” takes free of a security interest if the buyer gives value and takes delivery “without knowledge of the security interest” and before it is perfected. However, a “buyer, other than a secured party” under Fla. Stat. §679.3171(2) (2010) is not a “purchaser” under Fla. Stat. §679.330(4) (2010). Comment 6 to UCC §9-317 says that unless the sale is excluded from Article 9, the buyer is a “secured party,” and §679.3171(2) does not apply, adding “[r]ather, the priority rules generally applicable to competing security interests apply.”

²⁷Fla. Stat. §671.201(21)(a) (2010).

²⁸C.f., Ederer v. Fisher, 183 So. 2d 39, 42 (Fla. 2d D.C.A. 1965) (unauthorized indorsement deprived plaintiff of holder in due course status, thus, permitting defense on instrument). As in Ederer, inability to prove holder status does not necessarily mean the plaintiff lacks standing under Fla. Stat. §673.3011 (2010), but may expose the plaintiff to additional defenses.

²⁹SeeFla. Stat. §673.5011(2)(b)(1) (2010), permitting the maker to make such demand.

³⁰SeeFla. Stat. §673.5041(1) (2010), giving effect to such waivers.

³¹See, e.g., Scott v. Taylor, 58 So. 30 (Fla. 1912) (payment effective if made to authorized agent); McChesney v. Herman, 176 So. 565 (Fla. 1937); Posey v. Hunt Furniture Co., Inc., 43 So. 2d 343 (Fla. 1949); Fla. Stat. §671.103 (2010) (UCC does not displace law of agency).

³²Fla. Stat. §673.1041 (2010) determines negotiability. See, e.g., Locke v. Aetna Acceptance Corp., 309 So. 2d 43 (Fla. 1st D.C.A. 1975) (note stating “pay to seller” not negotiable because not payable to order of seller); City Bank, N.A. v. Erickson, 18 FLW Supp. 283 (Fla. Cir. Ct. 2011) (home equity agreement not negotiable where amount not fixed); Holly Hill Acres, Ltd. v. Charter Bank, 314 So. 2d 209 (Fla. 2d D.C.A. 1975) (note incorporating terms of mortgage not negotiable).

³³Johnston v. Allen, 22 Fla. 224 (Fla. 1886).

³⁴Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).

³⁵Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”).

³⁶Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).

³⁷See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).

³⁸BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But seeLizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership).

³⁹See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after).

⁴⁰Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).

⁴¹See Comment 6 to UCC §9-308.

⁴²Shavers v. Duval County, 73 So. 2d 684 (Fla. 1954); City of Gainesville v. Charter Leasing Corp., 483 So. 2d 465 (Fla. 1st D.C.A. 1986); Southern Colonial Mortgage Company, Inc. v. Medeiros, 347 So. 2d 736 (Fla. 4th D.C.A. 1977).

⁴³See, e.g.,Thomas E. Baynes, Jr., Florida Mortgages (Harrison Co. 1999), §7-2 (West pocket part for 2009), stating “[s]ection 4 was added to establish that perfection of a security interest in a mortgage…would be governed by the Florida Uniform Commercial Code…. This type of assignment of mortgage, sometimes characterized as a ‘collateral assignment,’ does not need to be recorded under F.S. §701.02.”

⁴⁴Fla. Stat. §671.201(38) (2010).

⁴⁵See, e.g., Gardner v. McPherson, 151 So. 390 (Fla. 1933) (dismissing foreclosure by unrecorded collateral assignee where mortgage had been satisfied by record mortgagee); Williams, Salomon, Kanner & Damian, as Trustee v. American Bankers Life Assurance Co., 379 So. 2d 119 (Fla. 3d D.C.A. 1979) (subordination unenforceable where recorded collateral assignee had not agreed). However, these cases predated subsection (4).

⁴⁶See, e.g., Manufacturers’ Trust Co. v. People’s Holding Co., 149 So. 5 (Fla. 1933).

⁴⁷American Bank of the South v. Rothenberg, 598 So. 2d at 290 (Fla. 5th D.C.A. 1992).

⁴⁸See also Chandler v. Davis, 190 So. 873 (Fla. 1939) (assignee from record mortgagee took subject to holder in possession of note); Karn v. Munroe, 6 So. 2d 529 (Fla. 1942) (subsequent assignee with possession prevailed over first); Vance v. Fields, 172 So. 2d 613 (Fla. 1st D.C.A. 1965) (first assignee recorded first, but took possession of wrong note; court correctly ruled for the second assignee with possession without discussing distinction between a real estate transaction and note sale). CompareTamiami Abstract & Title Co. v. Berman, 324 So. 2d 137 (Fla. 3d D.C.A. 1976), cert. den., 336 So. 2d 604 (Fla. 1976) (purchaser of original mortgagee’s assets did not own mortgage assigned of record to another by collateral assignment that later became absolute upon default). Because the buyer purchased the mortgage (not the real estate), the court should have applied rules regarding transfer of the mortgage as personal property, but focused instead on the land records. Yet the court said the defendant “claimed outright possession of said mortgage,” which left the possibility that his claim also arose from possession. Otherwise, it seems at odds with Cullison, cited in fn. 36.

⁴⁹ The court cited Kapila v. Atlantic Mortgage & Investment Corp. (In re Halabi), 184 F.3d 1335 (11th Cir. 1999), and Bradley v. Forbs, 156 So. 716 (Fla. 1934). In Kapila, 184 F.3d at 1338, the court held the assignee’s failure to record did not render the mortgage unperfected in the mortgagor’s bankruptcy. The court said §701.02 protects only an assignee of the mortgagee, not a person acquiring the real estate. However, the question of who owns a mortgage is distinct from whether it is perfected against grantees of the real estate owner. Bradley includes some ambiguous language, but stands primarily for the proposition that a purchaser cannot rely on informal assurances by the record mortgagee, but must obtain a satisfaction. See Bradley, 156 So. at 717. The Kapila court also said the Florida Supreme Court may have implicitly receded from Bradley in Hulet v. Denison, 1 So. 2d 467, 468-469 (Fla. 1941), presumably because it discussed the statute as though it applied to persons acquiring the land, even though its decision was on other grounds, i.e., actual notice. The purchasers relied on a satisfaction by the mortgage assignee of record. However, the original mortgagee’s surviving widow claimed the assignment was for collateral and had been discharged. The court said the purchasers had “actual notice,” but cited the failure of the purchaser to demand surrender of the note as the basis. If that is what is meant by “actual notice,” then what is the point of the recording statute?

⁵⁰ In addition to American Bank of the South v. Rothenberg, Gardner v. McPherson, Bradley v. Forbs, and Manufacturers’ Trust Co. v. People’s Holding Co., see Housing Authority v. Macho, 181 So. 2d 680 (Fla. 3d D.C.A. 1966).

⁵¹Rucker v. State Exchange Bank, 355 So. 2d at 172 (Fla. 1st D.C.A. 1978). The court spoke of surrender of the mortgage, but it is surrender of the promissory note that is important under the UCC. See also Perry v. Fairbanks Capital Corp., 888 So. 2d 725, 726 (Fla. 5th D.C.A. 2004).

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

How Homeoweners Can Use Various Forms of Mortgage Fraud Schemes For Wrongful Foreclosure Defense

12 Monday Aug 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Loan Modification, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, Scam Artists, Title Companies, Your Legal Rights

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Business, Finance, Financial Services, Loan origination, mortgage, Mortgage fraud, Mortgage loan, United States

Over the past few years, mortgage fraud continues to result in significant losses for both financial institutions and homeowners.

Mortgage fraud has continued to increase over the past few years. Declining economic conditions, liberal underwriting standards, and declining housing values contributed to the increased level of fraud. Market participants are perpetrating mortgage fraud by modifying old schemes, such as property flip, builder-bailout, and short sale fraud, as well as employing newer schemes, such as buy and bail, reverse mortgage fraud, loan modification and refinance fraud, and mortgage servicing fraud.

It is imperative that homeowners understand the nature of the various schemes involving mortgage frauds as this will help you to build rock solid defense when fighting your wrongful foreclosure to save your home.

Various individuals participate in mortgage fraud schemes. The following list consists of common participants in such schemes.

Appraiser                                Processor
Borrower                              Real Estate Agent
Buyer                                       Seller
Closing/Settlement Agent    Title Agent
Loan Servicer Underwriter
Originator    Warehouse Lender

BASIC MORTGAGE TRANSACTIONS

Basic mortgage transactions are generally the same whether the purpose of the loan is to purchase a property, refinance an existing loan, or obtain a loan against a property that is unencumbered and may be offered through one of the channels described below:

Retail

In retail transactions, the borrower makes an application directly with a financial institution loan officer. These mortgage transactions are the most basic and involve the fewest number of third parties, which may include appraisers and closing agents. Usually, the application package consisting of financial information, credit report, a collateral valuation report such as an appraisal or evaluation, title information, and various other credit-related documents, is compiled and forwarded to an underwriter for a credit decision. Upon approval, the financial institution then releases funds to a closing agent, who disburses funds to the various parties. The loan package is returned to the financial institution and reviewed for quality and accuracy. The loan is either held on the financial institution’s books or sold into the secondary market. Retail originations only include loans closed in the financial institution’s name.

Broker Origination

A broker-originated loan is similar to the retail transaction, except that the borrower makes an application with a mortgage broker. A broker is a firm or individual, acting on behalf of either the financial institution or the borrower, who matches a borrower’s financing needs with an institution’s mortgage origination programs. Brokers are compensated by receiving a commission expressed as a percentage of the total loan amount (e.g., 1 percent origination fee) from the borrower or through a yield-spread premium from the lender when the loan closes.

Brokers have played a critical role in the wholesale loan origination process and have significant influence on the total loan transaction. Brokers have served as the point of contact for the borrower and the lender, and coordinated the involvement of other parties to complete the transaction. A broker can perform some or most of the loan processing functions including, but not limited to, taking loan applications; ordering credit and title reports; verifying a borrower’s income and employment; etc.

Once the broker has gathered the necessary information, the application is submitted along with supporting documentation to one or more financial institutions for underwriting. The financial institution’s underwriter reviews the information and makes a credit decision. The financial institution also may perform pre-funding quality assurance activities, such as re-verification of income and employment.

A copy of the loan approval package, with documents prepared in the name of the financial institution, is then returned to the broker. Once the loan has closed, the completed package should be returned directly to the financial institution. Again, the financial institution may review the loan for quality and either retain the loan in its own portfolio or sell it.

Mortgage Loan Purchased from a Correspondent

In this transaction, the borrower applies for and closes a loan with a correspondent of the financial institution, which can be a mortgage company, another depository institution, finance company, or credit union service organization. The correspondent can close the loan with internally-generated funds in its own name or with funds borrowed from a warehouse lender. Without the capacity or desire to hold the loan in its own portfolio, the correspondent sells the loan to a financial institution. The purchasing financial institution is frequently not involved in the origination aspects of the transaction, and relies upon the correspondent to comply with the financial institution’s approved underwriting, documentation, and loan delivery standards. The purchasing financial institution may perform a quality control review prior to purchase. Also, the purchasing financial institution must review the appraisal or evaluation report and determine conformity with the Agencies’ appraisal standards, regulations, and supervisory guidance, as well as the financial institution’s requirements.

The loan can be booked in the financial institution’s own portfolio or sold.

In “delegated underwriting” relationships, the financial institution grants approval to the correspondent to process, underwrite, and close loans according to the financial institution’s processing and underwriting requirements. Proper due diligence, internal controls, approvals, quality control audits, and ongoing monitoring are warranted for these higher-risk relationships.

Each of the Agencies has issued detailed guidance on a financial institution’s management of its arrangements with third parties, including brokers, and associated risk. Examiners are encouraged to review and consider the guidance issued by their Agency in evaluating broker arrangements. Additionally, the Secure and Fair Enforcement Mortgage Licensing Act of 2008 (S.A.F.E. Act) requires licensing and/or registration for all residential mortgage loan originators. The system is also used for state-licensed mortgage companies. More information is available at the website at http://www.stateregulatoryregistry.org and contains comprehensive licensing, registration, enforcement action that is expected to be made available to the public through the website in the near future.

COMMON MORTGAGE FRAUD SCHEMES

This post defines schemes as the big picture or secret plan of action used to perpetrate a fraud. There are a variety of “schemes” by which mortgage fraud can take place. These schemes can involve individuals inside the financial institution or third parties. Various combinations of these schemes may be implemented in a single fraud. The descriptions provided below are examples of traditional and emerging schemes that are used to facilitate mortgage fraud. Click on the link for each fraud scheme to learn more about that particular scheme.

Builder Bailout

This scheme is used when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties.

Buy and Bail

Chunking

Chunking occurs when a third party convinces an uninformed borrower to invest in a property (or properties), with no money down and with the third party acting as the borrower’s agent. The third party is also typically the owner of the property or part of a larger group organizing the scheme. Without the borrower’s knowledge, the third party submits loan applications to multiple financial institutions for various properties. The third party retains the loan proceeds, leaving the borrower with multiple loans that cannot be repaid. The financial institutions are forced to foreclose on the properties.

Double Selling

Double selling occurs when a mortgage loan originator accepts a legitimate application and documentation from a buyer, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the loan.

Equity Skimming

Equity skimming is the use of a fraudulent appraisal that over-values a property, creating phantom equity, which is subsequently stripped out through various schemes.

Fictitious Loan

A fictitious loan is the fabrication of loan documents or use of a real person’s information to apply for a loan which the applicant typically has no intention of paying. A fictitious loan can be perpetrated by an insider of the financial institution or by external parties such as loan originators, real estate agents, title companies, and/or appraisers.

Loan Modification and Refinance Fraud

This scheme occurs when a borrower submits false income information and/or false credit reports to persuade the financial institution to modify or refinance the loan on more favorable terms.

Mortgage Servicing Fraud

This fraud is perpetrated by the loan servicer and generally involves the diversion or misuse of loan payments, proceeds from loan prepayments, and/or escrow funds for the benefit of the service provider.

Phantom Sale

This scheme generally involves an individual or individuals who falsely transfer title to a property or properties and fraudulently obtain funds via mortgage loans or sales to third parties.

Property Flip Fraud

A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers, buy and sell properties among themselves to artificially inflate the value of the property.

Reverse Mortgage Fraud

Reverse Mortgage Fraud involves a scheme using a reverse mortgage loan to defraud a financial institution by stripping legitimate or fictitious equity from the collateral property.

Short Sale Fraud

Fraud occurs in a short sale when a borrower purposely withholds mortgage payments, forcing the loan into default, so that an accomplice can submit a “straw” short-sale offer at a purchase price less than the borrower’s loan balance. Sometimes the borrower is truly having financial difficulty and is approached by a fraudster to commit the scheme. In all cases, a fraud is committed if the financial institution is misled into approving the short-sale offer, when the price is not reasonable and/or when conflicts of interest are not properly disclosed.

Two additional fraud schemes, which are briefly addressed below, are debt elimination and foreclosure rescue schemes. While these schemes are typically not perpetrated directly on financial institutions, and therefore not expanded upon to the same degree as the above-mentioned schemes, the end result of the scheme can have a negative impact on the financial institution.

DEBT ELIMINATION SCHEME

Debt elimination schemes are illegal schemes that offer to eliminate a borrower’s debt for an up-front fee. The organizers of these schemes create phony legal documents based on the borrower’s loan(s) for presentment to the borrower’s financial institution or other lending institution in an attempt to falsely satisfy the loans.

The threat this fraud scheme presents to a financial institution is the borrower’s cessation of loan payments. Financial institutions may find that the use of the false documents complicates the collection process and may temporarily prevent any final action against the borrower.

FORECLOSURE RESCUE SCHEME

Foreclosure rescue schemes prey upon homeowners in financial distress or facing foreclosure, with the promise to help save their home. There are multiple variations of this scheme, often charging up-front fees and/or convincing the homeowner to deed the property to the fraudster, with the premise that the homeowner can rent or buy the property back once the individual’s credit has improved. The goal of the fraudster is to collect fees or mortgage payments that are intended for the lender, but are not delivered, usually resulting in the loan going into default and ultimately foreclosure, causing loss to the financial institution.

COMMON MECHANISMS OF MORTGAGE FRAUD SCHEMES

This post defines mechanism as the process by which fraud is perpetrated. A single mortgage fraud scheme can often include one or more mechanisms and may involve collusion between two or more individuals working in unison to implement a fraud. Click on the links to learn more about that particular mechanism. The following is a list of common mechanisms used to perpetrate mortgage fraud schemes:

Asset Rental: Cash or other assets are temporarily placed in the borrower’s account/possession in order to qualify for a mortgage loan. The borrower usually pays a “rental” fee for the temporary “use” of the assets.

Fake Down Payment: In order to meet loan-to-value requirements, a fake down payment through fictitious, forged, falsified, or altered documents is used to mislead the lender.

Fraudulent Appraisal: Appraisal fraud can occur when an appraiser, for various reasons, falsifies information on an appraisal or falsely provides an inaccurate valuation on the appraisal with the intent to mislead a third party.

Fraudulent Documentation: Fraudulent documentation consists of any forged, falsified, incomplete, or altered document that the financial institution relied upon in making a credit decision.

Fraudulent Use of Shell Company: A business entity that typically has no physical presence, has nominal assets, and generates little or no income is a shell company. Shell companies in themselves are not illegal and may be formed by individuals or business for legitimate purposes. However, due to lack of transparency regarding beneficial ownership, ease of formation, and inconsistent reporting requirements from state to state, shell companies have become a preferred vehicle for financial fraud schemes.

Identify Theft: Identity theft can be defined as assuming the use of another person’s personal information (e.g., name, SSN, credit card number, etc.) without the person’s knowledge and the fraudulent use of such knowledge to obtain credit.

Straw/Nominee Borrower: An individual used to serve as a cover for a questionable loan transaction.

EXAMPLES OF MORTGAGE FRAUD SCHEMES

– – – – Builder Bailout – – – –

A builder bailout occurs when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties. In stressed economic or financial conditions, a builder may be pressured to liquidate remaining inventory to cover financial obligations. To sell the remaining properties, the builder may use a variety of tools including, but not limited to, hidden down payment assistance or excessive seller concessions to elevate the sales price. As a result of the scheme, the unsuspecting financial institution is often left with a loan secured by inflated collateral value and the “real” loan-to-value is greater than 100 percent.

Examples:

– A builder convinces buyers to purchase property by offering to pay excessive incentives that are undisclosed to the lender, including down payments, “no money down promotions”, and/or closing cost assistance.

– In an effort to attract participants, a builder promises to manage properties as rentals and absorb any negative cash flow for the first 12 to 18 months.

– A builder forms one or more companies to purchase the builder’s inventory at inflated market values. The affiliated company finances 100 percent of the purchase amount and funnels the excess cash back to the builder. This scheme falsely inflates the property value, clouds the builder’s true ability to move the inventory, and disguises the fact that the builder is ultimately responsible for repayment of the loan.

– A builder forms a mortgage origination affiliate to originate fraudulent loans. The loan files contain credit discrepancies, fraudulent appraisals, and/or erroneous certificates of occupancy and completion.

– When the builder can no longer lure investors/speculators, the builder may employ straw buyers to purchase the properties.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Excessive or unsubstantiated down payment.
• Unexplained large or multiple deposits reflected on deposit account statements.
• Borrower states that the property will be owner-occupied, but the property is located in a market dominated by investment properties or second homes (beach properties, duplexes, apartment buildings).
• Use of gift funds or grant funds.
• The HUD-1 shows disbursements from the builder’s (as seller) funds to persons or entities not reflected as lien-holders or vendors on the title commitment.
• Robust condominium sales in a slow market.
• All comparable properties are from the same project.
• Many loans to one applicant (credit report).
• No-money-down sales pitch (noted in marketing brochures or website).
• Reference to secondary financing on purchase contract, but not on the loan application.

• Parties to the transaction appear affiliated based on file documentation (personally/professionally).
• Incentives that include pre-paid condominium fees, principal and interest payments for a year, buy-down, free furniture, automobiles, parking spaces, boat slips, etc.

Companion Frauds

• Straw/Nominee Borrower

• Documentation Fraud (associated with income and assets)

• Fraudulent Appraisal

– – – – Buy and Bail – – – –

This scheme typically involves a borrower who is current on a mortgage loan, but the value of the house has fallen below the amount owed. The borrower continues to make loan payments, while applying for a purchase money mortgage loan on a similar but less expensive house because its value has declined. Alternatively, the borrower currently has good credit, but pending events are such that the borrower will soon be unable to afford monthly payments on the existing loan (e.g. loan term adjustments, job loss, debt accumulation, etc.) or qualify for a new loan. In either case, after the new property has been obtained, the borrower “walks” or “bails” on the first loan.

Examples:

A self-employed child-care service provider is living in a house purchased for $500,000 two years ago that is now worth approximately $350,000. Monthly payments on the adjustable rate mortgage loan are $3,000. In a few months the payments will adjust upward, as a result of the rate change, to $3,700, an amount the homeowner cannot afford. The homeowner finds a home selling for $200,000 and obtains a loan on that property by falsely claiming to rent the existing property. After moving into the second house, the borrower defaults on the initial mortgage loan.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Second home is substantially less in value and/or loan amount than the existing home.
• Borrower has minimal or no equity.
• Borrower is a first-time landlord (renting out the original property).
• Limited documentation is available to validate lease terms with the purported tenant.
• Purported tenant has a pre-existing relationship with the homeowner.

• Rental agreement appears suspect or projected rental cash flows appear unreasonable.
• Borrower defaults on the original mortgage loan shortly after purchasing a second property (only likely to be detected if the same lender holds both mortgages and loans).

Companion Fraud

• Fraudulent Documentation

– – – – Chunking – – – –

A third party convinces an uninformed borrower to invest in a property (or properties), with no money down, with the third party acting as the borrower’s agent. The third party is also typically the owner of the property, or is part of a larger group organizing the scheme. Without the borrower’s knowledge, the third party submits loan applications on the borrower’s behalf to multiple financial institutions for various properties. These applications are submitted as owner-occupied or as an investment property with a falsified lease. The scheme usually requires the assistance of an appraiser, broker, and/or title company representative to ensure that the third party, as agent for the borrower, does not have to bring any money to the multiple closings. The third party retains the loan proceeds, leaving the borrower with multiple loans that cannot be repaid. The financial institutions are forced to foreclose on the properties and suffer sizable losses.

Examples:

A borrower attended a seminar that outlined how to get rich by investing in real estate with no money down. A third party, a presenter at the seminar, encouraged the borrower to invest in three real estate properties. Under the third party’s guidance, the borrower completed the required application and provided documentation for the loans. The borrower was unaware that the third party owned numerous properties in the name of a Limited Liability Company and submitted applications on not just the three properties known to the borrower, but on a total of 15 different properties. Each application was sent to a different lender, and all were scheduled to close within a one-week timeframe. The borrower attended three of the closings with a different representative of the LLC as the seller. The third party then acted as an agent for the borrower, with power of attorney, at the other 12 closings. The borrower ended up with 15 mortgage loans instead of the three for which he had knowledge, and the lenders were stuck with loans to a borrower without the ability to repay the debts and were forced to foreclose on the properties.

Fraudsters approached nominees (straw borrowers) and enticed the nominees into allowing the fraudsters to apply for mortgage loans in the nominees’ names in order to buy houses. The fraudsters paid the nominees a small amount for allowing the fraudsters to use the nominees’ names to apply for the mortgage loans. The fraudsters completed the loan application paperwork with falsified information in order for the nominees to qualify for the loans. The fraudsters then received inflated property appraisals and obtained two mortgages on each home, one for the purchase price and another for the balance of the appraisal value.

According to the fraudster, the nominee will have no involvement beyond the mortgage application and the fraudster will manage the properties, find tenants, collect monthly payments, and pay the mortgage loans. The tenants, with insufficient credit, are placed in the homes under proposed lease/option-to-buy contracts. The fraudster fails to make a majority of the nominee’s mortgage loan payments, causing many of the mortgage loans to go into default. In some instances, the fraudster steals the tenants’ deposit money. Ultimately, lenders foreclose on the properties.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Multiple mortgage applications by one borrower.
• Credit report that reflects numerous mortgage inquiries.
• Out-of-state borrower.
• Seller that is a corporation or LLC.
• Seller that owns property for a short period of time.
• Previous transfer price that is much lower than current contract price.
• Incomplete lease agreements.
• Payoffs from seller’s funds to non-lien holders and vendors on the title commitment.

Companion Frauds

• Fraudulent Documentation

• Fraudulent Appraisal
• Identity Theft
• Property Flip Fraud
• Double Selling

– – – – Double Selling – – – –

A mortgage loan originator accepts a legitimate application and related documentation from a borrower, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the same loan. In some instances, double selling is self-perpetuating because, to keep the scheme going, different loans must be substituted for the ones on which documents cannot be provided. Under this scheme, the broker has to make payments to the investor who received the copied documents or first payment default occurs.

Examples:

– A borrower colluded with a mortgage broker to use the borrower’s property as collateral for numerous home equity lines of credit (HELOCs) at different financial institutions. The scheme was executed by closing on multiple HELOCs in a short period of time to take advantage of the delay in recording the mortgages. In addition, the mortgage broker misrepresented the borrower’s financial information in order to increase the borrower’s debt capacity. The property with less than $125,000 in equity was used to obtain over $1 million in credit from several financial institutions.

– A mortgage company used a group of financial institutions (referred to as warehouse lenders) to temporarily fund mortgage loans, which were then sold to another group of financial institutions as long-term investments. The scheme was accomplished by reselling the same loans to multiple investors. Accumulated losses associated with this scheme were in the millions of dollars.

Red Flags

• Discrepancies between underwriting and closing instructions.
• Outstanding trailing documents (e.g., executed note, deed, truth-in-lending, settlement statement, etc.)
• Missing or illegible insured closing letter in the name of the originator from the title company.
• Recent and numerous changes in the wiring instructions.
• Incorrectly named insured and loss payee on the hazard insurance policy.
• Missing mortgage insurance or guaranty, certificate of eligibility.
• Missing purchase commitment from investor – investor lock.

Companion Frauds

• Fraudulent Documentation
• Identity Theft

– – – – Equity Skimming – – – –

The use of a fraudulent appraisal, unrecorded liens or other means to create phantom equity, which is subsequently stripped out through either of the following methods:

Purchase Money Transaction

An inflated appraisal and sales contract allows the purchaser to obtain property with little or no down payment. The parties agree to raise the selling price to cover the buyer’s closing costs and/or down payment, or to obtain cash back at closing. As a result, the loan amount is higher than what the house is worth, effectively skimming all of the phantom equity out of the property.

Cash-Out Refinance Transaction

In the case of a refinance, the inflated appraisal or lack of recordation allows the borrower to extract cash in an amount greater than the actual value of the property.

Examples:

– A good example of an equity skimming scheme required a two-step process. In the first step, a loan officer and real estate agent colluded to purchase houses using false information on applications to qualify for loans. The second stage required the collusion of an appraiser to overstate the value allowing equity to be skimmed through the cash-out refinance process. Once no more equity could be extracted, the houses were allowed to go into foreclosure.

– A skimmer/purchaser convinces a property seller to provide a second mortgage loan with payments to begin later, perhaps in 6-12 months. During this period, the skimmer makes no payments on either the first or the second mortgage loan. In situations where the second mortgage is unrecorded, the skimmer will obtain a home equity or closed-end second mortgage, causing a loss to the issuing financial institution. By the time the seller realizes that they will not receive payments, the first mortgagee has begun foreclosure proceedings.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Borrower receiving cash back at closing in a purchase transaction.
• Title to property recently transferred.
• Cash-out refinance shortly after the property has been purchased (reference application, appraisal, and title commitment).
• Purpose for cash-out is not well documented.

Companion Frauds

• Fraudulent Appraisal
• Fraudulent Documentation (employment and income)

– – – – Fictitious Loan – – – –

Examples:

A mortgage broker created loan applications by using names, addresses, and phone numbers out of the telephone book. These loans were subsequently funded by various financial institutions. As the loans were fabricated and no properties existed, the loans went into default and were charged off.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Signatures are not consistent throughout the file.
• No real estate agent is employed.
• SSN was recently issued, or there is a death claim filed under SSN.
• Format of the passport number is not consistent with country of issuance.
• Employment and/or address on credit report do not match borrower’s application or there is an absence of credit history.
• Credit history is inconsistent with the borrower’s age.
• Returned mortgage loan payment coupons and/or monthly statements.
• Early payment default.

Companion Frauds
• Straw/Nominee Borrower
• Fraudulent Documentation
• Fraudulent Appraisal

– – – – Loan Modification and Refinance Fraud – – – –

Borrower submits false income information and/or false credit reports to persuade a financial institution to modify or refinance a loan on more favorable terms.

With respect to any mortgage loan, a loan modification is a revision to the contractual payment terms of the related of the related mortgage note, agreed to by the servicer and borrower, including, without limitation, the following:

1. Capitalization of any amounts owed by adding such amount to the outstanding principal balance.
2. Extension of the maturity.
3. Change in amortization schedule.
4. Reduction or other revision to the mortgage note interest rate.
5. Extension of the fixed-rate payment period of any adjustable rate mortgage loan.
6. Reduction or other revision to the note interest rate index, gross margin, initial or periodic interest rate cap, or maximum or minimum rate of any adjustable rate mortgage loan.
7. Forgiveness of any amount of interest and/or principal owed by the related borrower.
8. Forgiveness of any principal and/or interest advances that are reimbursed to the servicer from the securitization trust.

9. Forgiveness of any escrow advances of taxes and insurance and/or any other servicing advances that are reimbursed to the servicer from the securitization trust.
10. Forbearance of principal whereby the servicer “moves” a certain interest free portion of the principal to the “back-end” of the loan, lowering the amortizing balance and the monthly payment.

Refinancing is the process of paying off an existing loan by taking a new loan and using the same property as security. A homeowner may refinance for the following legitimate reasons:
• In a declining interest rate environment a refinance generally will lower monthly payments.
• In a rising interest rate environment a refinance to a fixed rate loan from an adjustable rate loan will generally allow the borrower to lock in the lower rate for the life of the loan.
• In a period of rising home prices the refinance allows the borrower to withdraw equity.

Examples:

– Two years after the origination of a mortgage loan, a borrower contacted the lender, claiming a need to modify the loan. In an attempt to deceive the lender into modifying the loan, the borrower stopped making loan payments. The borrower’s original loan application indicated that the borrower earned $7,500 per month; however, the borrower subsequently claimed income of only $1,200 per month. While evaluating the need for the modification, the bank reviewed the borrower’s credit report and determined that the customer’s supposed annual income of $14,400, was insufficient in comparison to the reported $40,000 per year servicing other debt, which was current. The bank stopped the modification process, as the borrower had intentionally understated income in an attempt to defraud the financial institution.

– A borrower contacted the lender claiming a reduction in income and trouble with making loan payments. The borrower provided the lender with a copy of his most recent tax return, which showed an adjusted gross income (AGI) of $45,000, down from the previous year’s $96,897. The borrower signed Form 4506-T, authorizing the lender to access tax returns filed with the IRS. In reviewing the tax information obtained from the IRS, the lender found that the borrower had recently amended the most recent return, lowering the AGI from $105,670 to $45,000. In this scenario, the borrower had purposely amended the return to reflect a lower AGI, possibly with the intent of amending it a second time to reflect the true amount of income.

– A borrower requests a loan modification for a property that he claims to occupy. Based on the various facts provided to the lender, it appears that the borrower is eligible for a modification. When underwriting the modification, the lender verifies the borrower’s income with the IRS. During the verification process, the lender recognizes two potential problems with the information provided. The address on the tax return is different than the address of the house collateralizing the loan, and the return reflects rental income from real property. After additional investigation, the lender concludes that the customer was trying to modify the loan on rental property and not on the primary residence.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Borrower states that the property is his primary residence and is therefore owner-occupied but the mailing address and telephone number are not for the subject property (e.g., property is located in North Carolina; mailing address and telephone number are in New York).
• Vague and/or unrealistic hardship (“the national economy”).
• No documented resolution of hardship.
• No or limited financial analysis in file.
• No employment/income verification.
• Credit Report inconsistent with borrower’s stated hardship.

• Financial reports that reflect low delinquencies that are inconsistent with local economic conditions or the bank’s loan portfolio composition.

Companion Frauds

• Fraudulent Documentation
• Fraudulent Appraisal (refinance)

– – – – Mortgage Servicing Fraud – – – –

Mortgage servicing typically includes, but is not limited to, billing the borrower; collecting principal, interest, and escrow payments; management of escrow accounts; disbursing funds from the escrow account to pay taxes and insurance premiums; and forwarding funds to an owner or investor (if the loan has been sold in the secondary market). A mortgage service provider is typically paid on a fee basis. Mortgage servicing can be performed by a financial institution or outsourced to a third party servicer or sub-servicer.

Mortgage servicing fraud generally involves the diversion or misuse of principal and interest payments, loan prepayments, and/or escrow funds for the benefit of the service provider. Mortgage servicing fraud can take many forms, including the following:

• A mortgage servicer sells a loan it services, but fails to forward funds to the owner of the loan following the sale. The servicer continues to make principal and interest payments on the loan so the owner is not aware that the loan had been sold.

• A mortgage servicer diverts escrow payments for taxes and insurance for its own use. This action would jeopardize a financial institution’s collateral protection.

• A mortgage servicer that fails to forward principal and interest payments to an institution that holds the note and mortgage, could report that loan as past due for a short period of time, and then use proceeds from other loans to bring that loan current. This would be similar to a lapping scheme involving accounts receivable. Deliberately failing to post payments in a timely manner causes late fees to increase which directly elevates the servicers’ income.

• A mortgage servicer makes payments on loans originated for or on behalf of a financial institution as a means to avoid repurchase pursuant to first payment default provisions.

Examples:

– Several insiders of a mortgage company fraudulently sold serviced loans belonging to other financial institutions and kept the proceeds. An insider modified data in the servicing system to make it appear the loans were still being serviced and were current.

– Two executive officers of a mortgage company took out personal mortgage loans in their names which were subsequently sold to an investor, with servicing retained by the mortgage company. The executives did not make any payments on their loans and suppressed delinquency reporting to the investor, allowing them to “live free” for a period of time until the investor performed a servicing audit and discovered the fraud.

Red Flags

• Failure of the financial institution to perform an on-site review of the servicer (loan documents, servicing records, etc.)
• A review of remittance reports provided to the financial institution by servicer finds a:
o Lack of detail within the remittance reports (principal reduction, interest paid, late fees charged and paid).
o Remittance reports that fail to reconcile with bank records.
• A review of delinquency reports provided to the financial institution by the servicer finds a:
o Lack of detail within delinquency reports.
o High volume of delinquent loans.
• A review of portfolio reports provided to the financial institution by the servicer finds a:
o Lack of detail within portfolio reports (listing of loans owned by the financial institution being serviced by the servicer including current balance).
o Portfolio reports that fail to reconcile with bank records.
• Annual review reveals detrimental information or deteriorating financial condition of the servicer.
• County records indicating lien holders are unknown to the financial institution.
• Excessive delay in a servicer’s remittance of principal and interest payments, escrow payments, or prepayments.
• Cancellation or reductions in coverage on servicer’s insurance policies, including errors and omissions policies.
• Failure of the servicer to maintain copies of original payment documents (e.g., loan payment checks) verifying borrower as the source of payments.
• Excessive errors related to payment calculations on adjustable rate loans or escrow calculations.

Companion Fraud
• Fraudulent Documentation

– – – – Phantom Sale – – – –

Phantom sales typically involve an individual or individuals who falsely transfer title to a property or properties and fraudulently obtain funds via mortgage loans or sales to third parties.

Examples:

– The perpetrator identifies an apparently abandoned or vacant property and records a fictitious quit claim deed to transfer the property into the perpetrator’s name. Once the perpetrator has recorded the necessary document, he has several options:

• Apply for and execute a loan secured by the property. He pockets the loan proceeds and disappears.
• Transfer the property to a co-conspirator. The new owner applies for a loan, splits the proceeds with the original perpetrator, and both disappear with the money.
• Transfer the property to a false name, apply for a loan in the false name, pocket the proceeds and disappear.
• Sell the property to an uninvolved third party, pocket the proceeds, and disappear.

In the first three scenarios the financial institution is left with a mortgage loan that has no payment source and is collateralized by fraudulently obtained property. This results in a 100 percent loss to the financial institution once the fraud is exposed. In the last example, both the purchaser and financial institution are defrauded.

Red Flags

• Title search reveals a recent ownership transfer via quit claim deed.
• Ownership transfers via quit claim deeds in an area where such is not normal.
• Quit claim deed owner is not from subject area.
• Quit claim deed owner is unrelated to former owner.

• Quick sale to third party after quit claim deed owner acquires property.

Companion Frauds

• Fraudulent Appraisal
• Identity Theft
• Straw/Nominee Borrower

– – – – Property Flip Fraud – – – –

A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers buy and sell properties amongst themselves, normally within a short time frame, to artificially inflate the value of the properties. This scheme is designed to extract as much cash as possible from the property, and the loan proceeds are often used for purposes not stated on the application.

There are a number of variations of the fraudulent property flip, some of which are more prevalent than others depending on the current economic conditions. Some schemes occur in geographic areas experiencing significant property value appreciation or in stagnant markets, where properties have been on the market for extended periods of time. An essential party in this scheme is a complicit appraiser, who fraudulently provides an inflated opinion of the property’s market value. The following are two variations of fraudulent property flips:

• A buyer purchases a property at market value and on the same day sells the property, at an inflated price in excess of the true market value to a straw buyer who has been paid to act as a buyer. The financial institution lending to the straw buyer typically is unaware of the prior purchase by the fraudster earlier that same day.

• A seller, whose property has been on the market for an extended period of time, is approached by a buyer/borrower who makes an offer on the property that is substantially higher than the market value. A financial institution funds the loan based on a fraudulent appraisal that inflates the value of the property. In some cases, the inflated value is supported by non-existent home improvements that were to be made. For example, a seller lists a property for $250,000 and a buyer/borrower offers $299,000. At closing, the seller receives the net proceeds of $250,000 on the original asking price of the home and the surplus of $49,000 is disbursed to the fraudsters through a payoff from the seller’s funds on the HUD-1 Settlement Statement at closing.

Examples:

– A group of individuals was organized by a real estate agent to flip properties. Each participant acquired a property with 100 percent financing, prior to the real estate market peak. The properties were then sold repeatedly amongst the individuals and /or their spouses to increase the market value. Title to some of the properties is held in trusts, obscuring ownership.

However, once the group obtained the requisite amount of cash, the loans were allowed to go into default. The participants split the loan proceeds in excess of the true market value for perpetrating the scheme.

Red Flags

• Property listed for extended period of time and sells for higher than list price.

• Property has been transferred or sold within the last six months.
• The property is advertised as “For Sale by Owner”.
• Value of the property has notably increased with no improvements or improvements are insufficient to justify the increase.
• Borrower has limited capacity to repay (e.g., high debt-to-income ratio)
• The property seller is not the owner of record.
• Purchase is disguised as refinances to circumvent down payment.
• Seller is an entity/corporation.
• Power of attorney used without explanation.
• Borrower owns excessive amount of real estate.
• Similarities on multiple applications received from a specific seller or broker.
• Notes in loan file suggest borrower pushed for a quick closing.
• Appraiser is not on list of approved appraisers.
• Appraisal was ordered by a party to the transaction or before the sales contract, or appraisal is a fax.
• Borrower named on the appraisal is different from applicant.
• Appreciation is noted in an area with stable or declining real estate prices.

• Comparables on the appraisal are unusual.
• Inconsistencies in VOE or VOD.
• Violation of the lender’s closing instructions.
• Same individuals involved as buyers and/or sellers in multiple transactions, which may be noted on the deed, title abstract, or other real estate documents found in file.
• Unusual credits or disbursements on settlement statements or discrepancies between the HUD-1 and escrow instructions.
• First payment default on loan.

Companion Frauds
• Fraudulent Appraisal
• Fraudulent Documentation
• Identity Theft
• Straw/Nominee Borrower

– – – – Reverse Mortgage Fraud – – – –

The rapid growth in and changes to the reverse mortgage market have created a lucrative environment for fraudulent activities. The vast majority of reverse mortgage loans are offered through HUD and are FHA-insured; the products are commonly referred to as Home Equity Conversion Mortgages (HECMs). According to data maintained by HUD and other sources, the reverse mortgage loan market increased over the last 5 years from approximately “$5.4 billion a year to more than $17.3 billion in 2008.”4
In addition, recent legislation increased the dollar amount of HECMs to $625,000, and purchase money transactions became effective in 2009. The primary requirements imposed by HUD are that the borrower has attained age 62 and that the collateral value supports the loan amount. There is no requirement to have owned the property for any minimum amount of time, and the loans do not require monthly repayment. Therefore, the loans are primarily underwritten based on the age of the youngest borrower and value of the home being used as collateral.

Reverse mortgage fraud is a scheme where legitimate or fictitious equity is stripped from the collateral. The lump-sum cash-out option will yield the greatest amount of loan proceeds, and likely will be where most fraud occurs. However, fraud may occur in other reverse mortgage loan products. For example, under the term program, where a borrower receives equal monthly payments for a fixed period of time, older borrowers will receive higher payments due to a shorter payment stream, creating a direct incentive to falsify age. Due to the structure of the HECMs, there are no warnings, such as past-due status or default, to raise suspicions, and possibly limit losses, as repayment is only required upon the borrower moving out of the property; upon death; default of property taxes or hazard insurance; or the property is in unreasonable disrepair.

Examples:

Property title is transferred into the perpetrator’s name and quickly re-titled into a straw buyer’s name. A lump-sum cash-out reverse mortgage loan is obtained and is premised on collusion of an appraiser who provides an “as if” renovated appraised value to fraudulently increase the market value. The perpetrator also places fictitious liens on the property to divert loan proceeds to himself.

Red Flags
A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.

• No notes in loan file pertaining to how the proceeds will be used, or notes indicate that proceeds will be used for unspecified monthly living expenses, but the loan is a lump-sum cash-out option.
• File notes indicate that the borrower does not exhibit any knowledge of the property, such as location, number of rooms, etc.
• The property title may have been “abandoned” by the local government and then transferred into the perpetrator’s name. The property may then be re-titled into the borrower’s name via either a warranty deed or a quit claim deed.
• Files contain notices that property taxes are delinquent, indicating default under the terms.
• Files contain notices that property insurance has lapsed, indicating default under the terms.
• Loan file information shows mail as returned to sender, possibly indicating the “owner” is no longer occupying the property and did not provide a forwarding address. An event of default occurs, when the owner no longer lives in the property.
• The title search (if performed) showed that the property title recently transferred to the borrower’s name, following a very short ownership by the seller, indicating the possibility of a flip transaction.
• Lender search of public records for either assessed value or sales prices show that the neighborhood is valued at substantially less than the subject property.
• Problems with the appraisal report may include:

– The report was prepared for a third party and not ordered by the financial institution.

– Comparable properties are not in the same neighborhood.

– Prior sales history is inconsistent with title search results.

• Refer to Fraudulent Appraisal for further details on potential appraisal fraud red flags.

Companion Frauds

• Fraudulent Appraisal
• Fraudulent Documentation
• Property Flip Fraud

– – – – Short Sale Fraud – – – –

A short sale is a sale of real estate in which the proceeds from the sale are less than the balance owed on the loan. The borrower may claim to have financial hardship and offers to sell the property so the financial institution will not have to foreclose. The financial institution and all interested parties, including other lien holders and any mortgage insurer, must approve the transaction. Some institutions may be motivated to approve a short sale because it is faster, results in a smaller loss than the prospect of a foreclosure, and does not increase the level of Other Real Estate Owned. Depending on the settlement and the state where the property is located, the deficiency balance may be forgiven by the financial institution.

Not all short sales are fraudulent. However, fraud occurs when a borrower withholds mortgage loan payments, forcing the loan into default so that an accomplice can submit a “straw” short-sale offer at a purchase price less than the borrower’s loan balance. Sometimes the borrower is truly having financial difficulty and is approached by a fraudster to commit the scheme. In all cases, a fraud is committed if the financial institution is misled into approving the short-sale offer when the price is not reasonable and/or when conflicts of interest are not properly disclosed.

Examples:

– A fraudster uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage loan. The straw buyer makes no payments on the loan and the property goes into default. Prior to foreclosure the fraudster makes an offer to purchase the property from the lender in a short sale agreement below market value. The lender agrees without knowing that the short sale was premeditated.

Red Flags

• Sudden default with no workout discussions and immediate request for short sale.
• Loan file documentation suggests ambiguous or conflicting reasons for default.
• Mortgage loan delinquency is inconsistent with the borrower’s spending, savings, and other credit patterns as indicated in the credit report.
• Short-sale offer is from a related party, which is sometimes not disclosed, or straw buyer.
• Short-sale offering price is less than current market value.
• HUD-1 Settlement statement shows cash-back at closing to the delinquent borrower, or other disbursements that have not been expressly approved by the servicer (sometimes disguised as “repairs” or other payouts).
• Fraudulent appraisal to support below market price.
• Seller intentionally lowers value of property by causing excessive, but cosmetic, damage or hiding dead animals to produce offensive odors. Adjustment to value is exaggerated downward even though costs for rehabilitation are low.
• Seller feigns financial hardship and hides assets – large volume of assets on original loan application have dissipated without explanation.
• County records show that the property was flipped soon after short sale with a higher price.
• County records show ownership is transferred back to the seller after short sale.
• Site visit or registered mail is not returned indicates seller continues to reside in the property.
• Real estate agent is in collusion with seller and withholds competitive/higher offers.
• Unusually high commission is paid to real estate agent.

Companion Fraud
• Fraudulent Documentation

*********** Fraud Mechanisms **********

Asset Rental

Asset rental is the rental of bank deposits or other assets, which are temporarily placed in a borrower’s account, in order for a borrower to qualify for a loan. The borrower usually pays some fee, such as a rental fee, for the temporary “use” of the asset. Asset rental programs have been generally described as tools to help borrowers whose financial condition poses a roadblock to being approved for a loan. Most often, the rental involves deposits or credit histories. Asset rental is a tool that can be used to commit mortgage fraud.

Deposit rental is a means to inflate an individual’s assets. An individual typically pays an origination fee of 5 percent of the amount of the deposit to be rented and a monthly fee of 1 percent to 1¾ percent of the deposit amount. The rented deposit can be owned by a third party that purports to be a financial institution or adds the borrower’s name to a real deposit account without granting access. The third party agrees to verify the deposit to any party authorized by the borrower. Written statements and verifications of deposit are available for an extra fee.

Credit histories are rented in an effort to raise an individual’s credit score. An individual typically pays a fee and is added to another individual’s credit card account as a non-user. The borrower has no access to or use of the credit card but benefits from the actual credit card holder’s timely payments.

In addition to asset rental, some companies also have advertised verification of employment and income services. Individuals fill out a form listing annual and monthly income and sources. Upon receipt of fees, the company verifies income and employment to lenders or others as authorized by the borrower.

Examples:

– A borrower would like to purchase a $450,000 house. Unfortunately, his $71,000 bookkeeper salary and $13,000 in a savings account do not meet the underwriting standards for the amount of the loan. The borrower, however, is certain that his salary will continue to increase at a minimum of 10 percent per year.

The borrower rented a $40,000 deposit account, for a fee of $2,000; the loan application reflected the $40,000 account as an asset. In addition, the borrower expected a raise the following year to $78,000, and enlisted an entity to verify that salary amount. The $78,000 was shown on the loan application as his current income. The loan file contained a verification of deposit for the $40,000 account, a verification of employment form verifying his job as an accountant, and a verification of income form for his $78,000 salary.

Red Flags

• Verification of Deposit (VOD), Verification of Employment (VOE) and Verification of Income (VOI) from a common source that is not the employer or the financial institution where the deposit is held.

• Information on credit report that is not consistent with information on VODs, VOEs and VOIs.
• Even numbers only appearing on the VODs and VOIs. Discrepancies between the deposit account establishment date and the date the borrower says it was established in the loan application process.

Fake Down Payment

In order to meet loan-to-value requirements, a fake down payment through fictitious, forged, falsified, or altered documents is used to mislead the lender. Collusion with a third party, such as a broker, closing agent, appraiser, etc. often exists to raise the purchase price and make it appear that the buyer is making a down payment to cover the difference between the purchase price and proposed loan. A fake down payment reduces the financial institution’s collateral position and in some cases, a financial institution may be financing over 100 percent of the purchase. Without the fake down payment, the financial institution would not have otherwise made the loan.

Examples:

A borrower wants to purchase property but does not have the money for a down payment. He offers the seller more than the asking price to give the appearance that the buyer is putting money down in order to get the loan. The seller agrees to amend the contract to reflect the increased price. The increase in sales price is not disbursed to the seller. Instead, a false payoff from the seller’s funds is reflected on the HUD-1 Settlement Statement when in reality, the seller provides the funds to the borrower for the down payment.

– A third party broker has a borrower interested in a loan to finance the purchase of a home. The borrower does not have sufficient funds available to meet the lender’s LTV requirements. Therefore, the broker loans the borrower $10,000 to use as a down payment, and the funds are represented to be a gift from family. The borrower and broker then enter into a loan agreement. The loan is to be secured by a lien against the house. Approximately ten days after closing of the purchase transaction, the broker records the second lien against the house to secure the down payment loan.

Red Flags

• Source of funds for down payment cannot be verified.
• Down payment appears to be accumulated suddenly instead of over time.
• Deposit is a rented account (refer to asset rental) or has a round dollar balance.
• Down payment source is held in a non-financial institution such as an escrow trust account, title company, etc.
• Market value of property is inflated.
• Property sells above asking price even though on the market for an extended period of time.

Fraudulent Appraisal

Appraisal fraud can occur when an appraiser for various reasons falsifies information on an appraisal or falsely provides an inaccurate valuation on the appraisal with the intent to mislead a third party. In addition, appraisal fraud occurs when a person falsely represents himself as a State-licensed or State-certified appraiser or uses the identity of an appraiser as his own.

One common form of appraisal fraud relies on overvalued or undervalued property values, also known as artificial inflation/deflation using one or more valuation approaches. A buyer and a real estate professional will use a willing appraiser to artificially modify the value of a property. The property’s false inflated value can be used to secure a second mortgage, place the property on the market at a greatly inflated price, or secure an initial mortgage loan that will be defaulted upon at a later time. An undervalued appraisal can be used to assist in a short sale or loan modification fraud scheme.

Examples:

– A couple obtains financing for the purchase of their first house, contingent upon the house value. The couple plan to use the $8,000 tax credit for the down payment and closing costs and only have nominal cash available, so there is no possibility that the couple could cover the difference if the house doesn’t appraise. The couple’s loan officer arranges for an appraisal of the property, but sends the appraiser the standardized form with the final market value section completed. The appraiser wants to continue his relationship with the mortgage broker, so he agrees to develop an appraisal report to support the value provided. The property is compared to properties outside of the general area where the subject house is located. Without knowledge of that area, it appears, to anyone reviewing the appraisal report, that the comparable properties provide support for the value. However, no adjustments have been made for the facts that the comparable properties are newer, larger, in better condition, and in a better location than the subject property.

– A house being appraised has materially less square footage than the comparable properties. To boost the square footage of the subject property, the appraiser doubles the square footage of the unheated out-building, that is used for lawn equipment, and adds that square footage to the square footage of the house. No adjustments are made to the comparable properties, since now the subject and comparable properties have similar square footage. A review of the square footage of the house and out-building clearly shows that the appraiser intentionally misrepresented the property value.

Red Flags

There are various red flag indicators that can be used to identify the possibility of appraisal fraud. The identification of red flags could suggest individual fraud activities or more complex fraud schemes. Such red flag indicators for appraisal fraud are subdivided into categories below:

Appraisal Engagement Letter/Appraisal Ordering

• There is no appraisal engagement letter in file or the appraisal does not correspond to the engagement letter.
• The appraisal was ordered or provided by the buyer, seller, or an unidentified third party to the transaction rather than the financial institution or its agent.
• The appraisal was order by the financial institution loan production staff rather than from an independent office within the institution.

The Appraiser/Appraiser Compensation

• Appraiser was not located in reasonable proximity of the subject property and it is unclear that the appraiser has appropriate knowledge of the local market.
• Appraiser licensing/certification information is missing or appraiser information is clouded in some way.
• Appraisal fee is based on market value of subject property.
• Appraiser has had enforcement action taken against him or is not otherwise eligible to perform appraisals for federally related transactions (www.ASC.gov).

Property Comparables

• Comparable properties are materially different from subject property.
• Comparable properties are outside a reasonable radius of the subject property (except for rural properties).
• Comparable property sales are stale without an explanation.
• Appraiser makes large value adjustments to comparable properties without adequate explanation.
• Recent and multiple sales for subject and/or comparables are shown in the appraisal without adequate explanation as to the circumstances.

Appraisal Information and Narrative

• The market value in the appraisal report is lower than purchase price.
• Listing rather than sales information was used to determine value.
• Evidence of appraisal tampering (e.g., different font style, handwritten changes).
• Refinance transaction shows property recently listed “for sale”.
• Market rent is significantly less than rent amounts indicated on lease agreement.
• Income approach is not used on a tenant-occupied, or rented single-family dwelling.
• Significant appreciation or devaluation in short period of time.
• Appraisal indicates transaction is a refinance when it is a purchase.
• Appraised value is contingent upon property improvements or curing of property defects.
• Abnormal capitalization or discount rates without explanation.
• Appraisal dated before loan application date.
• Significant variances in property value among the Cost, Income, and Sales approach.
• Appraisal excludes one or more valuation approaches when such an approach is pivotal to the loan underwriting decision.
• Owner is someone other than seller shown on sales contract.
• Unusual or frequent prior sales are listed for subject and/or comparables without adequate explanation.
• Occupant noted as “tenant” or “unknown” for owner-occupied refinances.

Appraisal Photographs and Mapping (Comparable and Subject)

• Photos missing, non-viewable, or blurry.

• A “For Rent” or “For Sale” sign shows in the photos of the subject property for an owner-occupied refinance.
• Photos do not match property description.
• Photo background image is inconsistent with the date or season of the appraisal.
• Photos of subject property taken from odd angles to mask unfavorable conditions.
• Negative valuation factors are not disclosed in appraisal (e.g., commercial property next door, railroad tracks, or another structure on premises).
• Photos for the subject property and comparables appear to be from different photo source (e.g., internet photos).
• Appraisal maps showing location of subject and comparables is either absent or shows wide geographical separation from subject property.

Other Appraisal Information

• Documentation in loan file suggests a re-appraisal due to appraisal results or the stated value of subject property without an explanation.
• Loan file contains more than one recent appraisal with significant variance in value without an explanation.
• House number of property in photo does not match the subject property address.
• A fax or an electronic version of the appraisal is used in lieu of the original containing signature and certification of appraiser.
• The appraisal was not reviewed prior to loan funding or appraisal was reviewed by loan production rather than an independent office within the institution.

Fraudulent Documentation

Documentation fraud occurs when any document relied upon by the financial institution to make a credit decision, is forged, falsified, or altered. Fraud can also occur if proper due diligence and verification practices are not consistently applied. Similarly, obtaining documents to satisfy a checklist is not the same as having verified the authenticity of the document.

Documentation Types

1. Sales Contract

Sales contracts may be falsified to reflect higher sales prices. These higher sales prices are intended to produce higher comparables for appraisal purposes and result in artificially inflated values. The inflated values result in a higher loan amount than would otherwise be justified. Additionally, falsified seller identity may be used to perpetrate frauds, such as transferring property via falsified deeds or listing property for sale that the seller does not legally own. The identity of the buyer and/or seller may also be falsified in order to disguise a flip transaction or the use of a straw borrower.

Red Flags

• Borrower is not listed as purchaser on the sales contract.
• Seller listed on contract is not the owner listed on title or appraisal.
• All parties did not sign the sales contract and/or addendum.
• Sales contract is not dated or dated after other file documents (unless it is a pre-qualification.)
• Sales contract is received at the last minute or has been changed from the previously submitted contract.

2. Loan Application

Parts of or the entire application may be falsified.

Red Flags

• Application states purpose is for refinance, but the credit report and/or tax records do not indicate the borrower owns the property.
• Purchase amount of the property differs from the sales contract.
• Borrower claims the property will be owner-occupied, when the intent is for investment/rental purposes.
• Application shows all assets, but liabilities are inconsistent with those reported on the credit report.
• Assets are inconsistent with job position and income.
• Omission of some or all properties owned by the borrower in the real estate section of the application.
• Borrower declarations are inconsistent with credit report.
• Debt-to-Income ratios are exactly at maximum approval limits
• Misrepresentation of employment and income.

3. Credit Report

The credit report contains significant information reflective of the borrower’s ability and desire to repay debt obligations. Credit reports are sometimes altered so that a borrower can meet specific loan requirements. For example, credit scores can be changed (increased) through scanning and alteration of information.

Red Flags

• The absence of credit history indicating the possible use of an alias and/or multiple social security numbers.
• Borrower recently pays many or all accounts in full, possibly indicating an undisclosed debt consolidation loan.
• Indebtedness disclosed on the application differs from the credit report.
• The length of time trade lines were opened is inconsistent with the buyer’s age.
• The borrower claims substantial income but only has credit experience with finance companies.
• All trade lines opened at the same time with no explanation.
• Recent inquiries from other mortgage lenders are noted.
• AKA (also known as) or DBA (doing business as) are indicated.

4. Driver’s License

Government issued driver’s licenses can be partially verified through entities that can identify whether the licensing number sequence complies with the state’s system. However, state issued identification cards do not always have the same quality.

Red Flags

• No hologram.
• No photograph.
• Name, address, physical characteristics do not match.
• Expired driver’s license.
• Illegible driver’s license.

5. Social Security Number

The first five digits of a Social Security Number (SSN) signify the state and the date range in which it was issued. SSNs should be compared to numbers associated with deceased taxpayers. Identity alerts are also a useful tool if accessed via the credit reporting system.

Red Flags

• Credit report alert states that SSN has not been issued.
• Credit report alert states that SSN is on the master death index.
• Format and digits are not correct.
• Improper color and weight of the social security card.
• Highly unlikely series of digits (999-99-9999 or 123-45-6789).

• Ink smudges, poorly aligned, and odd fonts.

6. Bank Statement

Deposit account statements may include legitimate financial institution names and addresses, but can be fraudulently modified to include falsified telephone numbers that are answered by a party to the scheme.

Red Flags

• Altered copies.
• Missing pages.
• Application information (name and address) does not match the account holders.
• Inconsistency in the color of original bank statements.

7. Deposit Verification (VOD)

A party to the scheme may verify deposits held at a depository institution, even though no such financial institution, account, or deposits in that name exist.

Red Flags

• The VOD is completed on the same day it is ordered.
• Deletions or cross outs exist on the VOD.
• No date stamp receipt affixed to the VOD by the depository to indicate the date of receipt.
• The buyer has no deposit accounts, but a VOD is in the file.
• The deposit account is not in the borrower’s name or is a joint account with a third party.
• The borrower’s account balance at the financial institution is insufficient to close the transaction.
• The deposit account is new or has a round dollar balance.
• The closing check is drawn on a different financial institution.
• An illegible signature exists with no further identification provided.
• Significant balance changes are noted in depository accounts during the two months prior to the date of verification.
• The checking account’s average two-month balance exactly equals the present balance.
• Funds for the down payment are only on deposit for a short period.
• An IRA is shown as a source of down payment funds.
• Account balances are inconsistent with application information.
• The down payment source is held in a non-depository “depository,” such as an escrow trust account, title company, etc.
• An escrow receipt is used as verification which may have been from a personal check not yet cleared or a check returned due to insufficient funds.
• The VOD is not folded indicating it may have been hand carried.
• The VOD is not on original financial institution letterhead or a recognized form.

8. Employment Verification (VOE)

Fake employment verification can be used by those who collude in mortgage fraud. This is usually associated with an organized scheme.

Red Flags

• The seller and applicant have similar names.
• Borrower’s employer does not know borrower or borrower was terminated from employment prior to the closing date.
• The VOE is not on original letterhead or a standard Federal National Mortgage Association (FNMA)/Federal Home Loan Mortgage Corporation (FHLMC) form.
• The VOE is completed the same day it is ordered, indicating it may have been hand-carried or completed before the initial application date.
• An illegible signature exists with no further identification provided.
• The employer uses only a mail drop or post office box address.
• The business entity is not in good standing with the State or registered with applicable regulatory agencies.
• An overlap exists with current and prior employment.
• Excessive praise is noted in the remarks section of response.
• Round dollar amounts are used in year-to-date or past earnings.
• Income is not commensurate with stated employment, years of experience, or type of employment.
• Income is primarily commission based, although borrower claims he is a salaried employee.
• The borrower’s interest in the property is not reasonable given its distance from the place of employment.
• The borrower has a recent large increase in income or started a new job.
• Faxes are used in lieu of originals documents.
• CPA letter is used to validate employment.
• Leases are used to evidence additional income.

9. W-2 Statement or Paystub

Off-the-shelf software and internet sites make the creation of fake W-2 statements and paystubs relatively easy.

Red Flags

• Borrower income is inconsistent with type of employment.
• Social security number on W2 or paystub is invalid, differs from loan application, or has been recently issued.
• Name misspelled.
• Variances in employment data with other file documentation.
• Commission-type position with “base” salary only (and vice versa).
• Round dollar amounts for year-to-date or prior year’s earnings.
• Numbers that appear to be “squeezed in”.
• Document alterations, such as white-outs or cross-outs or inconsistent fonts.
• Not computer-generated, especially from large employer.
• W-2 is typed, but paystubs are computer-generated.
• Check numbers do not increase chronologically.
• Amounts withheld for Social Security, Medicare and other government programs are inconsistent with the level required.
• Debts reflected as deduction from pay (credit union loans, etc.) not disclosed on application.
• Year-to-date totals do not total accurately from paycheck to paycheck.
• An employer identification number that is not in the XX-XXXXXXX (two digits, hyphen, seven digits) format, or is not all numeric.
• Employer and employee names or addresses are inaccurate.

• Income reflected on W-2 statements is different than income reported on mortgage loan application, VOE, and tax returns.
• Federal Insurance Contribution Act (FICA) and Medicare wages/taxes and local taxes, where applicable, exceed ceilings/set percentages.
• Copy submitted is not “Employee’s Copy” (Copy C).

10. Tax Return/Amended Tax Return

Fake tax returns may be provided to the underwriter as the borrower believes that no verification will occur. In other instances, amendments to tax returns may be made to further the scheme, regardless of whether the income amount increases or decreases.

Red Flags

• Address and/or profession do not agree with other information submitted on the mortgage loan application.
• Type of handwriting varies within return.
• Evidence of “white-out” or other alterations.
• Unemployment compensation reported, but no gap in employment is disclosed.
• Estimated tax payments by self-employed borrower (Schedule SE required); or self-employment tax claimed, but self-employment not disclosed.
• Tax returns are not signed/dated by borrower.
• IRS Form 1040 – Schedule A:

– Real estate taxes and/or mortgage loan interest is paid but no property is owned, or vice versa.

– Tax preparation fee is deducted, yet prior year’s return is prepared by borrower.

– Minimal or no deductions for a high-income borrower.

• IRS Form 1040 – Schedule B:

– Borrower with substantial cash in the bank shows little or no related interest income.

– No dividends are earned on stocks owned.

– Amount or source of income does not agree with the information submitted on the mortgage loan application.

• IRS Form 1040 – Schedule C:

– Business code is inconsistent with type of business.

– Gross income does not agree with total income on Form 1099s.

– No “cost of goods sold” on retail or similar type of business.

– Borrower takes a depreciation deduction for investment real estate not disclosed, or vice versa.

– Borrower shows interest expense but no related loan, such as a business loan with personal liability.

– No deductions for taxes and licenses.

– Wages are paid, but no tax expense is claimed.

– Wages are paid, but there is no employer identification number.

– Salaries paid are inconsistent with the type of business.

– Business expenses are inconsistent with type of business (e.g., truck driver with no vehicle expense).

– Income significantly higher than previous years.

• IRS Form 1040 – Schedule E:

– Additional properties are listed, but not shown on the mortgage loan application.

– Mortgage loan interest is deducted but no mortgage is disclosed.

– Borrower shows partnership income (may be liable as a general partner for partnership’s debts).

11. Deed

Quit Claim and Warranty Deeds may be used by someone who is transferring the property’s title, but is not the owner or the owners’ representative. The purpose of such transactions is to sell the property outright or to refinance the debt in a cash-out transaction to collect loan proceeds. A fake Power of Attorney may be used as authorizing the deed transfer.

Red Flags

• Recent ownership transfer or multiple transfers in a short period of time via quit claim or warranty deed.
• Representative not local or from out of state.
• Deeds involving individuals not party to the transactions.
• Deeds where parties share common names/hyphenated names, suggesting family relationships.
• Obvious errors, such as misspelled names, or other items.

12. Title or Escrow Company/Title Commitment

Fraudulent loan schemes may involve the use of a fake title company or may involve an employee of the title company. The company appears to provide legitimate documentation, which was possibly stolen from a legitimate title company (such as a falsified closing protection letter). Employees of legitimate title companies may be part of a scheme, where they either fabricate title commitments or delete information that would help identify fraudulent activity, such as flipping.

Red Flags

• The seller either is not on the title or is not the same as shown on the appraisal or sales contract.
• The seller owned the property for a short time with cash out on sale.

• The buyer had a pre-existing financial interest in the property.
• The chain of title includes the buyer, real estate agent, or broker.
• The title insurance or opinion was prepared for and/or mailed to a party other than the lender.
• Income tax or similar liens are noted against the borrower on refinances.
• Non-lien holders are shown on HUD-l.
• The title policy is not issued on the property with the lien or on the whole property.
• Faxed documents are used rather than originals or certified copies.
• Title commitment and final title policy reflect two different title insurers.
• Closing instructions are not followed.
• Delinquent property tax exists and does not appear on the title commitment.
• A notice of default is recorded and does not appear on the title commitment.

13. Business License

Business licenses may be fabricated to show that a supposed self-employed borrower owns a business. In this instance, the borrower owns no such business. Others may actually formally incorporate with the state office to conceal the fact that no such business operates.

Red Flags

• No physical address (P.O. Box only) or physical address belongs to mail box rental company. Various search engines can help determine if disclosed physical address belongs to mail box rental.
• No telephone number or email address.
• No state franchise or other required annual filings.

14. Notary stamps

Notary stamps may be stolen and used in fraudulent transactions. In addition, notaries may be participants in furthering a scheme and receive funds for their participation. While e-notary will prevent stealing of physical stamps, it will not necessarily eliminate the coercion of notaries. Also, the fact that e-notary does not require the log to be downloaded daily to an impartial party that maintains a database of transactions, can allow for information to be changed after-the-fact. This would be the equivalent of changing the hand-written log.

Red Flags

• Seal is not embossed.
• Seal appears to be photocopied, rather than original.
• Notary is either related to or has a business relationship with a party to the transaction.

15. Power of Attorney

Powers of Attorney (POA) are legal documents authorizing another party to act on the first party’s behalf. POAs can be Limited, General, or Durable. Durable POAs have the longest duration, as they cease upon the death of the authorizing person, whereas General POAs cease upon a pre-established date, competency, or incapacitation. Limited POAs are identified with a specific timeframe or certain acts. Documents can be easily fabricated to show that one party has a legal right to enter into financial transactions on behalf of another. POAs may or may not be filed with the appropriate governmental office.

Red Flags

• A General or Durable POA is dated at approximately the same date as the transaction.
• Person, who supposedly authorized the Limited or General POA, is unaware of the document.
• In those areas where all POAs are recorded documents, the document is not recorded.
• The POA is not prepared by an attorney, but by using off-the-shelf software.
• POA is used in cash-out refinances or reverse mortgage loans.

16. HUD-1 Settlement Statement

The HUD-1 settlement statement is an accounting of the transaction from both the borrower’s and seller’s standpoint. This form is often falsified to withhold information from the lender, or there are often two distinctly different HUD-1 forms in fraudulent transactions.

Red Flags

• Borrower receives cash-back at closing.
• Payoff of non-lien holders typically reflected as marketing fees, payment for repairs, or renovations.
• Existence of multiple, different HUD-1’s.
• Items paid outside of closing (outside of normal appraisal and credit report fees).
• Overpayment of fees and commissions to realtor, broker, etc.
• Signatures on the HUD-1 do not match other signatures throughout the file.

Fraudulent Use of a Shell Company

A shell company is a business entity that typically has no physical presence, has nominal assets, and generates little or no income. Shell companies in themselves are not illegal and may be formed by individuals or businesses for legitimate purposes. However, due to lack of transparency regarding beneficial ownership, ease of formation, and inconsistent reporting requirements from state to state, shell companies have become a preferred vehicle for financial fraud schemes.

Both the U.S. Government Accountability Office (GAO) and FinCEN have reported on shell companies and their role in facilitating criminal activity. These reports have focused on limited liability corporations (LLCs) due to their dominance and growth in popularity. However, any type of business entity can be a shell company. To further obscure ownership and activity, there are numerous businesses that can provide a shell company with a registered agent and mail forwarding service, or offer nominee services, such as nominee officers, directors, shareholders, or nominee bank signatory. Other businesses sell established shell companies for the purpose of giving the appearance of longevity of a business, and a history of creditworthiness which may be required when obtaining leases, credit, or bank loans.

Examples:

– Several individuals with the intent of committing fraud formed a shell company as a way of disguising their identities. The individuals purchased properties in the name of the shell company and at the same time recruited straw borrowers to purchase the properties from the shell company at inflated prices. Owners of the shell company provided the straw borrowers with fake documents in order to qualify for the loans. The shell company owners profited from the difference between the original purchase price and the mortgage loan proceeds, less the fee paid to the straw borrower. The straw borrower defaulted on the loan, forcing the financial institutions to foreclose on the houses.

Red Flags

• Entity has no telephone number or email address.
• No physical address (P.O. Box only) or physical address belongs to mail box rental company.
• No company logo.
• No website, if one would be expected.
• No domestic address/contact if a foreign company.
• Newly-formed entity.
• Registered agent recently changed.
• Transacting businesses share the same address; provide only a registered agent’s address; or other address inconsistencies.
• Unusual cash withdrawals from business accounts.

Identity Theft

Identity theft can be defined as assuming the use of another person’s personal information (e.g., name, SSN, credit card number, etc.) without the person’s knowledge and the fraudulent use of such knowledge to obtain credit. Perpetrators commit identity theft to execute schemes using fake documents and false information to obtain mortgage loans. These individuals obtain someone’s legitimate personal information through various means, (e.g., obituaries, mail theft, pretext calling, employment or credit applications, computer hacking, trash retrieval, etc.) With this information, they are able to impersonate homebuyers and sellers using actual, verifiable identities that give the mortgage transactions the appearance of legitimacy.

Examples:

– A university student database, which included social security numbers and other personal identifying information, is compromised by a computer hacker. The investigation revealed that the hacker subsequently sold the personal identification information to a third party, who then proceeds to submit falsified mortgage loan applications to numerous financial institutions which resulted in approximately $5 million in losses to the financial institutions. Law enforcement stated that the third party, in collusion with a notary, appraiser, and other industry insiders, used the student information to purchase homes owned by the third party and other collaborators at highly inflated prices. In addition to identity theft, the loan files also included misrepresentations of employment, falsified down payments, and inflated appraisals.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Credit report contains a fraud alert or consumer-driven freeze on their credit report, which means no credit reports can be pulled until the consumer lifts the freeze.
• Credit report indicates that the social security number was not yet issued.
• Recently-opened accounts.
• Employment and residence history on the credit report and application do not match.
• Copy of driver’s license does not match profile on the application.
• Recently issued SSN.
• Current address on the application does not match other documents in the file (e.g., bank statements, W-2’s, utility bills, etc.)
• Additional red flags may be found in the FCRA under Appendix J of 12 CFR 41 (Subpart J – Identity Red Flags)

Straw Borrower / Nominee Borrower

A straw (nominee) borrower is an individual used to intentionally disguise the true beneficiary of the loan proceeds. Straws can be willing participants in the transaction or victims whose identity is being used without their knowledge. Often a willing straw borrower does not think the transaction is dishonest because they believe the recipient of the loan proceeds will make the payments. Reasons why a beneficiary of the loan proceeds may use a straw borrower are because the beneficiary:

• Does not qualify for the mortgage loan,
• Has no intent to occupy the property as a primary residence, or
• Is not eligible for a particular loan program.

Also straw borrower activities are commonly used with family members who step in for the purchase or refinance when the true home owner (family member) does not qualify for a loan.

Examples:

– A couple wanted to buy a home but did not qualify because their debt ratio was much too high. They also had very little cash to use as a down payment. To “help” them, one of their parents applied for the loan and was approved for a 97 percent LTV product. The couple moved into the house, and could not make the monthly payments. The servicer called the straw borrower, who informed the servicer that he did not live in the home and that his daughter and son-in-law were supposed to be making the payments. Despite, being contractually obligated, the straw borrower parent refused to bring the loan current. The lender was forced to foreclose and took a loss on the sale of the REO.

– A fraud ring acquired 25 properties, all of which were in various stages of disrepair. Some were even uninhabitable and slated for condemnation by the city. The ring then recruited individuals through their church, clubs, and other associations to each buy a property sight unseen. Each borrower was told they would not need to live in the property, and each borrower was also promised payment of $7500. The fraud ring arranged for inflated appraisals to be performed by promising the appraiser the job of appraising all 25 properties. The applications were submitted to several different lenders with numerous misrepresentations surrounding not only the true property values, but occupancy intent, borrower employment, income, and assets as well. The loans closed and resulted in first payment defaults, as the straw borrowers were told that their properties were passive investments that would not require any monthly payments due to tenants already being in the properties. A handful of the straw borrowers did receive their $7500 as promised, but most did not. Upon receiving collection calls, the straw borrowers determined they had been misled. The lenders ultimately foreclosed on the properties, discovered the true condition of the properties, and suffered losses upon the sale of the REO.

Red Flags

• The application is unsigned or undated.
• Borrower’s income is inconsistent with job or position.
• A quit claim deed was used either right before or soon after the loan was closed.
• Investment property is represented as owner-occupied on loan application.
• Loan documents show someone signed on the borrower’s behalf.
• Names were added to the purchase contract.
• Sale involves a relative or related party.
• No sales agent or realtor was involved.
• The name and address of borrower on credit report does not correspond with information on the loan application.
• Appraisal irregularities exist regarding property valuation and documentation. (See Fraudulent Appraisal.)
• Power of attorney was used in place of borrower.
• Good assets, but “gifting” was used as all or part of down payment.
• Repository alerts on credit report.

Glossary:

Appraisal Management Company (AMC): A business entity that administers a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions and other entities. The company recruits, qualifies, verifies licensing, and negotiates fees and service-level expectations with a network of third-party appraisers. It also provides administrative duties like order entry and assignment, tracking and status updates, pre-delivery quality control, and preliminary and hard copy report delivery. Furthermore, the AMC oversees ongoing quality control, accounts payable and receivable, market value dispute resolution, warranty administration, and record retention.

Appraiser: One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.

Borrower: One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest. The borrower may be purchasing property, refinancing an existing mortgage loan, or borrowing against the equity of the property for other purposes.

Buyer: A buyer is a person who is acquiring property.

Closing: The culmination of any RE transaction in which the interested parties or their representatives meet to execute documents, exchange funds, and transfer title to a property.

Closing Costs: Moneys expended by a party in completing a RE transaction, over and above the purchase price, including: legal fees, taxes, origination fees, discount points, mortgage insurance premium, interest adjustments, registration fees, appraisal fees, title insurance premium, etc.

Closing/Settlement/Escrow Agent: An individual or company that oversees the consummation of a mortgage transaction at which the note and other legal documents are signed and the loan proceeds are disbursed. Title companies, attorneys, settlement agents, and escrow agents can perform this service. Local RE law may dictate the party conducting the closing.

Concessions: Benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling, upgrades (also called “build-outs”), and reduced rent for the initial term of the lease.

Collusion: An agreement, usually secretive, which occurs between two or more persons to deceive, mislead, or defraud others of their legal rights, or to obtain an objective forbidden by law, typically involving fraud or gaining an unfair advantage.

Correspondent: A mortgage originator who underwrites and/or sells mortgage loans to other mortgage bankers or financial institutions.

Credit Report Fraud Alert: A notation at the bottom of a credit report indicating that some items of identification, i.e., Social Security number, address, etc., are associated with past fraudulent activities. For example, an address may be flagged because the previous occupant allegedly used the property for financial misbehavior. Each credit reporting agency has different names for these alerts: TransUnion – HAWK Alerts, Experian – Fraud Shield, and Equifax – Safescan.
Deed: The document by which title to real property is transferred or conveyed from one party to another. (See Quitclaim Deed and Warranty Deed.)

Deed of Trust: A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the provision that the trustee shall re convey the title upon the payment of the debt. Conversely, the third party will sell the land and pay the debt in the event of default by the borrower. (See Mortgage.)

Developer: A person or entity, who prepares raw land for building sites, constructs buildings, creates residential subdivisions or commercial centers, rehabilitates existing buildings, or performs similar activities.

eNotary: An electronic notary that may include the use of a digital seal to notarize digital documents. (See also Notary.)

Escrow Instructions: Instructions prepared by a lender and/or underwriter to direct the progression of a mortgage closing transaction from start to finish.

Evaluation: A valuation required by the Agencies’ appraisal regulations for certain transactions that are exempt from the regulations.

Federal Home Loan Mortgage Corporation (Freddie Mac): Commonly used name for the Federal Home Loan Mortgage Corporation (FHLMC), a government sponsored entity that provides a secondary market for conforming conventional residential mortgage loans by purchasing them from primary lenders.

Federal Housing Administration (FHA): A federal agency established to advance homeownership opportunities. The FHA provides mortgage insurance to approved lending institutions.

Federal National Mortgage Association (Fannie Mae): A government sponsored entity that, as a secondary mortgage loan institution, is the largest single holder of residential mortgage loans in the United States. Fannie Mae primarily buys conforming conventional residential loans from primary lenders.

Federally related transaction: Means any real estate-related financial transactions entered into after the effective date hereof that:
(1) The FDIC or any regulated institution engages in or contracts for; and
(2) Requires the services of an appraiser.

Foreclosure: A legal proceeding following a default by a borrower in which real estate secured by a mortgage or deed of trust is sold to satisfy the underlying debt. Foreclosure statutes are enacted by state government.

Form 1003: The standardized loan application form used in residential mortgage loan transactions.

Form 4506T: An IRS form that taxpayers execute to authorize the IRS to release past tax returns to a third party. Many lenders require mortgage loan applicants to execute this form in order to verify income.

Fraud: A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to their detriment.

Government National Mortgage Association (Ginnie Mae): A government-owned corporation that provides sources of funds for residential mortgage loans, insured or guaranteed by the FHA or VA.

HUD-l Form: A standardized form prescribed by the Department of Housing and Urban Development that provides an itemization listing of funds paid at closing. Items that appear on the statement include RE commissions, loan fees, points, taxes, initial escrow amounts, and other parties receiving distributions. The HUD-l statement is also known as the “closing statement” or “settlement sheet.”

Lapping: A fraud that involves stealing one customer’s payment and then crediting that customer’s account with a subsequent customer’s payment.

Loan Servicer: A loan servicer is a public or private entity or individual engaged to collect and process payments on mortgage loans.

Loan-to-Value Ratio (LTV): Relationship of loan amount to collateral value, expressed as a percentage.

Market Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Modification Agreement: A document that evidences a change in the terms of a mortgage loan, without refinancing the loan. Commonly, changes are made to the interest rate, repayment terms, guarantors, or property securing the loan.

Mortgage: A lien on the property that secures a loan. The borrower is the mortgagor; the lender is the mortgagee.

Mortgage Banker: An individual or firm that originates, purchases, sells, and/or services loans secured by mortgages on real property.

Mortgage Broker: An individual or firm that receives a commission for matching borrowers with lenders. Mortgage brokers typically do not fund the loans they help originate.

Mortgage Fraud: A knowing misrepresentation of the truth or concealment of a material fact in a mortgage loan application to induce another to approve the granting of a mortgage loan. For the purpose of this paper, mortgage fraud refers solely to fraudulent schemes pertaining to residential mortgage loans.

Nominee Loan: A loan made to one individual in which the proceeds of the loan benefit another individual without the knowledge of the lender.

Notary: A person who certifies the authenticity of required signatures on a document, by signing and stamping the document. (See also eNotary.)

Originator: The individual or entity that gathers application data from the borrower. Alternatively, a person or entity, such as a loan officer, broker, or correspondent, who assists a borrower with the loan application.

Power-of-Attorney: A legal document that authorizes a person to act on another’s behalf. A power-of-attorney can grant complete authority or can be limited to certain acts (closing on a property) or timeframes (from date granted until a termination date). A durable power-of-attorney continues until the grantor’s death.

Pretext Calling: A scheme associated with identity theft in which a fraudster, pretending to represent a legitimate entity, calls an unsuspecting party seeking personal identification data, such as social security numbers, passwords, or other forms of account information. The fraudster then uses this information to assume the identity of the unsuspecting victim. Among other things, the fraudster can obtain a mortgage loan in the name of the unsuspecting victim.

Processor: The processor is an individual who assembles all the necessary documents to be included in the loan package.

Quitclaim Deed: A deed that transfers without warranty whatever interest or title, if any, a grantor may have at the time the conveyance is made. A grantor need not have an interest in the property to execute a quitclaim deed.

Real Estate Agent: An individual or firm that receives a commission for representing the buyer or seller, in a RE purchase transaction.

Reverse Mortgage: A reverse mortgage loan converts the equity in the home into cash. Unlike a traditional loan, no repayment is required until the borrower no longer uses the house as a principal residence. To be eligible under FHA’s program, Home Equity Conversion Mortgage (HECM), the homeowner must be at least 62 years old, and live in the house. The program was expanded in 2009 so that HECMs can be used to purchase a primary residence.

Secure and Fair Enforcement Mortgage Licensing Act of 2008 (S.A.F.E. Act): Legislation designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry. The S.A.F.E. Act further requires the federal agencies to establish similar requirements for the registration of depository institution loan originators.

Secondary Market: The buying and selling of existing mortgage loans, usually as part of a “pool” of loans.

Seller: Person offering to sell a piece of real estate.

Short Sale: Sale of the mortgaged property at a price that nets less than the total amount due on the mortgage loan. Servicers and borrowers negotiate repayment programs, forbearance, and/or forgiveness for any remaining deficiency on the debt to lessen the adverse impact on borrowers’ credit records.

Straw Buyer/Borrower: A person used to buy property or borrow against property in order to conceal the actual owner. The straw buyer does not intend to occupy the property or make payments and often deeds the property to the other individual immediately after closing. The straw buyer is usually compensated for use of his identity.

Third Party: The parties necessary to execute a residential mortgage transaction other than a financial institution and a legitimate borrower. Third parties include, but are not limited to, mortgage brokers, correspondents, RE appraisers, and settlement agents.

Title Agent: The title agent is a person or firm that is authorized on behalf of a title insurer to conduct a title search and issue a title insurance report or title insurance policy.

Title Company/Abstract Company: Entity that researches recorded ownership of and liens filed against real property and then issues a title insurance policy guaranteeing the lien position of the lender or provides a title opinion. Some states also require an attorney opinion supported by an abstract.

Title Insurance: An insurance policy that indemnifies the lien position of a lender against losses associated with property interests not disclosed in the title opinion. The borrower can also obtain this coverage by purchasing a separate policy.

Title Opinion/Commitment/Binder: An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property.

Underwriting: The credit decision-making process which can be automated, manual or a combination of both. In an automated process, application information is entered into a decision-making model that makes a credit determination based on pre-determined criteria. In a manual process an individual underwriter, usually an employee of the financial institution, makes the credit decision after evaluating all of the information in the loan package, including the credit report, appraisal, and verifications of deposit, income, and employment. Financial institutions often use a combination of both, with the automated decision representing one element of the overall credit decision. In each case, the decision may include stipulations or conditions that must be met before the loan can close.

Verification of Deposit (VOD): Written document sent to the borrower’s depository institution to confirm the existence of a down payment or cash reserves.

Verification of Employment (VOE): Written document sent to the borrower’s employer to confirm employment/income. Employment is often reconfirmed by calling the employer prior to funding.

Verification of Income (VOI): Written documentation supporting the borrower’s income level and income stream.

Warehouse Lender: A short-term lender for mortgage bankers. Using mortgage loans as collateral, the warehouse lender provides interim financing until the loans are sold to a permanent investor.

Warehouse (Loan): In mortgage lending, warehouse loans are loans that are funded and awaiting sale or delivery to an investor.

Warehouse Financing: Short-term borrowing of funds by a mortgage banker based on the collateral of warehoused loans. This form of interim financing is used until the warehoused loans are sold to a permanent investor.

Warranty Deed: A deed warranting that the grantor has a title free and clear of all encumbrances and will defend the grantee against all claims against the property.

For More Information How Your Can Use Well Structured Litigation Pleadings Designed Around These Fraudulent Schemes In Order To Effectively Challenge Your Wrongful Foreclosure and Successfully Save Your “American Dream” Home Visit: http://www.fightforeclosure.net

Understanding Mortgage Fraud ~ A Comprehensive Guide For Homeowners

31 Wednesday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Defense, Fraud, Judicial States, MERS, Mortgage Laws, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pro Se Litigation, Scam Artists, Securitization, State Court, Your Legal Rights

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Blank endorsement, Business, MER, mortgage, Mortgage loan, Negotiable instrument, Real estate, Securitization

How Homeowners Can Effectively Determine Various Forms of Fraud in their Mortgage Loan With Defective mortgage documents.

A) Why Titles of Home Foreclosure Sale To Buyers Are Often Defective.

How Can We Deal With the Problem?

Securitization Flow Chart and Structure

B) Transfer of Promissory Note

– – Negotiable instrument under Article 3 of the UCC

– Transferred by:

• Endorsement

• Delivery of the instrument

• Acceptance of delivery

• Negotiation = Endorsement + Delivery + Acceptance

C) Transfer of Mortgage

– – Mortgage is a real estate instrument

Subject to the statute of frauds

Must comply local real estate law

– Transferred by:

• Written assignment

• Delivery of the instrument

• Acceptance of delivery

• Recording of transferred mortgage

• “Assignment” = Written Transfer/Assignment + Delivery + Acceptance + Recording

D) Notarization Requirements

• Most state laws require “strict” compliance

• Signer must admit, by oath or affirmation, in the PRESENCE of notary to having voluntarily signed the document, and signer’s capacity

• Signer must make the OATH or AFFIRMATION before signing

• Must identify the signer by a federal or state issued photographic ID

• Penalties include civil and criminal

• Felony in most states to take a false acknowledgement

• Document is invalid with improper notarization

E) The Alphabet Problem With Securitized Transfers

• The loan closed in the name of the Broker/Lender

• Broker is funded by Warehouse Line of Credit
Warehouse Lender then sells paper to a Special Investment Vehicle (SIV)

• SIV then sells paper the Sponsor/Depositor

• Sponsor or Depositor then transfers to Trust

F) How Many Transfers

• A-Transfer: Consumer to Broker

• B-Transfer: Broker to Warehouse Lender

• C-Transfer: Warehouse Lender to SIV

• D-Transfer: SIV to the Depositor or Sponsor

• E-Transfer: Depositor or Sponsor to Trust

G) How Many Documents

• Four assignments and deliveries and acceptances of the Mortgage

• Four endorsements and deliveries of the Note

• Eight separate notarizations

• Eight UCC-1 financing statements

• Four recordings

• Four filing and transfer fees

H) The Allonge

• A paper attached to a negotiable note

• Purpose is to provide written endorsement

• Only used when back of negotiable instrument is FULL (no room)

• No need for notarization

• Simple signature and title sufficient,as with endorsement on note

I) Similar ABCDE Problem With the Mortgage Instrument

• A. Consumer must sign and deliver to Broker

• B. Broker must assign and deliver to the Warehouse Lender

• C. Warehouse Lender must assign and deliver to the SIV

• D. SIV must assign and deliver to the Depositor

• E. Depositor must assign and deliver to the Trust

• And all these assignments must be recorded!

J) Who Holds the Bearer Paper and Mortgages for the Trust?

• Normally a third-party bank that provides document custody services to the trust

• Provides trailing document filings

• Provides custody chambers for all members

• Executes assignments for members

• Execute endorsements for members

• Executes deliveries and acceptances

• Provide on-line document status certifications

K) What Does Trust Really Hold?

• Electronic data with loan numbers & collateral descriptions

• Electronic image of the original deed of trust

• Electronic image of the original mortgage note

• Rights in the documents by way of UCC-1 financing statements and the pooling & servicing agreements

L) The 3d-PartyOutsource Providers

• Fidelity National Default Services

• First American National Default Services

• National Default Exchange, LP(Barrett Burke Owned Entity

• Promiss Default Solutions(McCalla Raymer Owned Entity)

• National Trustee Services(Morris Schneider Owned Entity)

• LOGS Financial Services(Gerald Shapiro Owned Entity)

M) What Do the Outsource Providers Do for the Servicers?

• Create Assignments

• Create Allonges

• Create Endorsements

• Sign documents as if they were the VP or Secretary of a Bank, SIV, Depositor, Sponsor or the Trust

• Notarize these documents

• Create Lost Note Affidavits

• Create Lost Assignment Affidavits

• Create Lost Allonge Affidavits

• Draft court pleadings and notices

• Draft default correspondence, reports, etc.

N) How to Identify a Defective Endorsement or Allonge

• Allonge can never be used to transfer a mortgage

• Allonge can never be used if there is enough room on the original mortgage note for the written endorsement

• Note is endorsed and not assigned

• Date of the endorsement is before or after the date of the registration of trust

• And much more …

O) Defective Endorsements

• Notary is from Dakota County, Minnesota

• Notary is from Hennepin County, Minnesota

• Notary is from Jacksonville, Florida

• Signor’s company has no offices in notary’s state

• Date of endorsement and date of notarization are different

• Signor’s name is stamped –not written in script

• Signor claims to have signing authority but no authority attached

P) What About the Mortgages?

• Assignments and delivery follow same model as with the notes

• MERS is used to avoid registration of each assignment with local register of deeds

• MERS claims no beneficial interest in the note

• MERS claims no ownership rights in note or mortgage

• MERS claims it is nominee for true owner

• MERS delegates signing authority to all MERS members to sign documents as officers of MERS

• MERS does not supervise any of it’s designated signors

• MERS is not registered as a foreign corporation in most states

Q) How Does Trust Establish Lawful Ownership?

• Unbroken chain of note endorsements and acceptances from A to B, B to C, C to D, and D to E

• Unbroken chain of mortgage assignments and deliveries and acceptances from A to B, B to C, C to D, and D to E

• Unbroken chain of UCC-1 financing filings throughout the chain

• Unbroken chain of recorded mortgage assignments

R) But What Is Filed In a Typical Foreclosure?

• Complaint alleging that the borrower (A) executed a note and mortgage in favor of the plaintiff (E)

• Note and mortgage from borrower (A) to originating lender (B) attached

• Sometimes a purported mortgage assignment from (B) to (E) attached, also purporting to assign the note

• This assignment always defective, often not recorded

S) The Paper Trail and The Lack of Truth in Labeling

• Electronic data

• Fake dates & forged signatures

• False notarization

• False assignments

• Fake endorsements

• Fraudulent lost note affidavits

• Recreated documents & records

• Allonges and more

T) Is the Trust Really Secured?

• MAYBE –But it would be very difficult for any securitized trust to produce a valid set of original and unbroken assignments and endorsements

• Even if the trust produces ALLof the required documents, there is still the issue of the legality of the role of MERS on all required documents for recording

To Learn How You Can Effectively Use Some of These As Solid Arguments to Effectively Defend and Save Your Home Visit: http://www.fightforeclosure.net

How Nevada Residents Can Effectively Use Mediation To Save Their Home

01 Monday Jul 2013

Posted by BNG in Affirmative Defenses, Foreclosure Defense, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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administrative office of the courts, Business, district court judges, Foreclosure, Home insurance, July, Mediation, mediation program, Nevada, Nevada Supreme Court, Owner-occupier, Real estate, robert estes, Robert Gaston

The program allows homeowners and lenders to sit down with trained mediators to discuss alternatives to foreclosure. The mediations, which are confidential, are required to be conducted within 80 days of a Notice of Default and Election to Sell being recorded by the lender and served on the homeowner.

1) Only owner-occupied homes are eligible under the law

Only owner-occupied homes are eligible under the law and only if a notice of default was recorded on or after July 1, 2009. Once a homeowner elects mediation, the lender must participate. The $400 mediation fee is split equally between the two parties. The Administrative Office of the Courts is administering the program and has established a webpage with a variety of information and forms, including some information in Spanish.

2) Mediators Appointed For Foreclosure Mediation Program

The Nevada Supreme Court initially appointed the first 97 mediators for the Nevada Foreclosure Mediation Program a major step that set the stage for the scheduling of the first mediations. The 97 include former Supreme Court Justice Deborah Agosti and former District Court judges Robert Gaston, Robert Estes, and Leonard Gang. Also on the list are current State Bar of Nevada President Kathy England and former Nevada Supreme Court Clerk Janette Bloom. The list of mediators has increase since then.

3). Homeowners who receive notices have 30 days from the day they received their notice to seek mediation

Homeowners who receive foreclosure notices technically Notices of Default and Election to Sell have 30 days from the day they received their notice to seek mediation under the program that was created by the Nevada Legislature effective July 1, 2009. We have seen a wave of requests for mediation and the wave is getting larger, said Verise Campbell, Foreclosure Mediation Program Manager. This is what we expected. We knew, because of the mandated time frames, that it would take some time for the requests for mediation to come rolling in and for the program to come up to speed.

4). Once all submissions are in, cases will be assigned to mediators within 10 days

In the process, homeowners must submit their election of mediation form along with a $200 fee to their lenders within 30 days of receiving foreclosure notices. The lenders then forward the request and the homeowner’s funds, along with the lender’s $200 payment and other documents, to the Foreclosure Mediation Program. Once all submissions are in, cases will be assigned to mediators within 10 days and mediations will be scheduled within 80 days of the date the foreclosure notice was recorded.

5). Training sessions for the Nevada Foreclosure Mediation Program

The list of individuals selected to attend the first training sessions for the Nevada Foreclosure Mediation Program has been set and the participants have been notified. Those training sessions include Aug. 5 in Reno and Aug. 6-7 in Las Vegas and were designed to provide foreclosure-specific information to experienced mediators.

6). Mediation is an alternative method to help parties resolve disputes by agreement with the help of trained mediators.

The Foreclosure Mediation Program was established as a result of the Assembly Bill 149, passed during the 2009 session of the Nevada Legislature.Its purpose is to address the foreclosure crisis head-on and to help keep Nevada families in their homes. This law establishes a Foreclosure Mediation Program for owner-occupied residential properties that are subject to foreclosure notices formally known as a Notice of Default and Election to Sell filed on or after July 1, 2009. Mediation is an alternative method to help parties resolve disputes by agreement with the help of trained mediators.

7). Lenders must have someone at the mediation or available with the authority to modify a loan

Under the Supreme Court Rules, the homeowner must submit copies of financial records and indicate the amount of a mortgage payment that could be made if a loan modification could be reached. Lenders must submit documents indicating current appraisals of a home’s value and estimates of what it could sell for in a so-called short sale. Lenders must have someone at the mediation or available with the authority to modify a loan and provide the original or certified copies of the mortgage note, deed of trust, and any assignments of the mortgage note or deed of trust. The rules require that the parties to mediate in “good faith.”

8). the program will offer homeowners the opportunity to sit down with their lenders, mediation will not be the solution for everyone

In July of 2011 when the program first started, 4,205 foreclosure notices were recorded in Nevada. (15 of 17 counties reporting; That was down from the monthly average of about 7,600 and well below the more than 11,000 filed in June. In addition to the owner-occupied homes eligible for the Foreclosure Mediation Program, the foreclosure notices include commercial properties and residential housing not occupied by the owners.

9). New recording fee for Notices of Default and Election to Sell

The Nevada Foreclosure Mediation Program has also resulted in a new recording fee for Notices of Default and Election to Sell. The new fee, established by Assembly Bill 65, is $50. On this website is an information brochure announcing the new recording fee for the Notice of Default The Election/Waiver of Mediation Form to be served with the Notice of Default and Election to Sell is included along with instructions for the individuals recording the notices involved in the new foreclosure procedures.

10). If there is an agreement, the parties will execute the appropriate documents.

Within 10 days of the mediation, the mediator will prepare the necessary Statement of Agreement or Non-agreement and serve it on the parties. The original will be filed with the Foreclosure Mediation Program Administrator and the mediation will be closed. Within 10 days of the mediation, the mediator will prepare the necessary Statement of Agreement or Non-agreement and serve it on the parties. The original will be filed with the Foreclosure Mediation Program Administrator and the mediation will be closed. If there is an agreement, the parties will execute the appropriate documents. If there is no agreement, the parties will be free to pursue other legal remedies.. If there is no agreement, the parties will be free to pursue other legal remedies.

TIMELINE FOR NEVADA FORECLOSURE
DAY     EVENT
DAY 1 – –    Notice of Default and Election to sell is recorded.
An State of Nevada Election/Waiver of Mediation is sent to homeowner along with copy of Notice of Default and Election to Sell.
Within the Next 10 Days     Notice of Default and Election to Sell must sent out to the Trustor/Owner and all the Lien Holders by U.S. Post Office Certified Mail.
1st Day after Mailing the NOD – –   A 35 day reinstatement period begins.
DAY 30 – –    Election to Mediate expires 30 days from the date of the Notice of Default and Election to sell.
DAY 35 – – The right to reinstate expires. Not at midnight but at the end of the working day.
25 Days before Foreclosure     Lender notifies the IRS (if applicable).
DAY 91 – – The lender has the right to send out a Notice of Trustee’s Sale. From the date of the Notice of Trustee’s Sale it’s 20 days to foreclosure, unless otherwise specified in the notice. Notice of Trustee’s Sale must be sent via U.S. Registered Mail to all parties who require notification. The notice must also be posted within the County where the sale is to be held and where the property is located.
1 Week before Foreclosure     A bid price is typically established at this point. The bid amount includes principal, interest, advances and costs.
DAY 111 – – Day of Trustee’s Sale also known as the foreclosure day. Anyone interested in buying the property can bid on the property. Only cash or certified funds are accepted. After the sale, a new deed is provided for the new owner. The new owner may be the bank or the winning bidder.

Note: Over the last few years, we saw that many times lenders did not act this quickly in their execution of foreclosures but it is important to note that they have the right to do so.

Quick Facts

– Judicial Foreclosure Available: Yes

– Non-Judicial Foreclosure Available: Yes

– Primary Security Instruments: Deed of Trust, Mortgage

– Timeline: Typically 120 days

– Right of Redemption: Yes

– Deficiency Judgments Allowed: Yes

In Nevada, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure

The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

The borrower has one year (12 months) after the foreclosure sale to redeem the property if the judicial foreclosure process is used.

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

A copy of the notice of default and election to sell must be mailed certified, return receipt requested, to the borrower, at their last known address, on the date the notice is recorded in the county where the property is located. Any additional postings and advertisements must be done in the same manner as for an execution sale in Nevada.
Beginning on the day after the notice of default and election was recorded with the county and mailed to the borrower, the borrower has anywhere from fifteen (15) to thirty five (35) days to cure the default by paying the delinquent amount on the loan. The actual amount of time given is dependent on the date of the original deed of trust.
The owner of the property may stop the foreclosure proceedings by filing an “Intent to Cure” with the Public Trustee’s office at least fifteen (15) days prior to the foreclosure sale and then paying the necessary amount to bring the loan current by noon the day before the foreclosure sale is scheduled.
The foreclosure sale itself will be held at the place, the time and on the date stated in the notice of default and election and must be conducted in the same manner as for an execution sale of real property.

Lenders have three (3) months after the sale to try and obtain a deficiency judgment. Borrowers have no rights of redemption.

NEVADA FORECLOSURE TIMELINE

DAY	EVENT
DAY 1	Notice of Default and Election to sell is recorded. An State of Nevada Election/Waiver of Mediation is sent to homeowner along with copy of Notice of Default and Election to Sell.
Within the Next 10 Days	Notice of Default and Election to Sell must sent out to the Trustor/Owner and all the Lien Holders by U.S. Post Office Certified Mail.
1st Day after Mailing the NOD	A 35 day reinstatement period begins.
DAY 30	Election to Mediate expires 30 days from the date of the Notice of Default and Election to sell.
DAY 35	The right to reinstate expires. Not at midnight but at the end of the working day.
25 Days before Foreclosure	Lender notifies the IRS (if applicable).
DAY 91	The lender has the right to send out a Notice of Trustee’s Sale. From the date of the Notice of Trustee’s Sale it’s 20 days to foreclosure, unless otherwise specified in the notice. Notice of Trustee’s Sale must be sent via U.S. Registered Mail to all parties who require notification. The notice must also be posted within the County where the sale is to be held and where the property is located.
1 Week before Foreclosure	A bid price is typically established at this point. The bid amount includes principal, interest, advances and costs.
DAY 111	Day of Trustee’s Sale also known as the foreclosure day. Anyone interested in buying the property can bid on the property. Only cash or certified funds are accepted. After the sale, a new deed is provided for the new owner. The new owner may be the bank or the winning bidder.

Over the last few years, we saw that many times lenders did not act this quickly in their execution of foreclosures but it is important to note that they have the right to do so.

– See more at: http://michaelsrealestate.com/nevada-foreclosure-law/#sthash.CfhtdkBI.dpuf

For more information about foreclosure defense please visit: http://www.fightforeclosure.net

What California Residents Needs To Know When Faced With Foreclosure Challenges

01 Monday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Foreclosure Defense, Judicial States, Non-Judicial States, Your Legal Rights

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Business, Deed in lieu of foreclosure, Foreclosure, Lien, Mortgage loan, Real estate, Trust deed (real estate), Trustee

What is a foreclosure?
“Foreclosure” is a common term used to describe a trustee’s sale proceeding- the correct terminology to use when describing the procedure for enforcing a lender’s rights once an obligation secured by a Deed Of Trust (or similar instrument) is in default.

What constitutes a breach or a default?
A breach exists when the borrower fails to make the payments of principal and interest when due pursuant to the note secured by deed of trust. If the balance of the note is due, the breach would be the failure to make the principal payment due plus interest, by the maturity date. Most deeds of trust have provisions for default being declared when a senior lien, insurance, taxes and assessments have not been paid, or if the property is transferred without the lenders approval.

Should I forego a foreclosure and take a deed in lieu?
Before you can even consider an alternative, the borrower must be willing to offer a deed in lieu. There are advantages to taking a deed in lieu. It could save you time and money. You should order a preliminary title report and review it carefully to determine if there are any junior liens that would survive the deed in lieu. If you are satisfied with the title report, you would take the deed in lieu subject to a title insurance policy being issued in your favor as reflected in the preliminary report. This procedure would take a lot less time than the approximate four months of foreclosure. The main disadvantages to taking a deed in lieu of foreclosure are the junior liens will not be extinguished and that the borrower may later have a change of heart and seek to have the courts set the deed in lieu aside.

Must the original trustee process a non-judicial foreclosure?
No. The beneficiary may substitute trustees anytime.

Should I notify a senior lender of the existence of my junior lien? Yes. A senior lender may have a provision in his deed of trust that provides for senior priority for additional advances to the borrower. When advances are “obligatory” to protect the lender’s security interest, they are so secured. However, if the advances are “optional” and the senior lender has knowledge of a junior lien, the advances may not be senior to the junior lien of trust. A junior lender, therefore, should give the senior lender notice of their lien. Many lenders would like to reduce their collection efforts by having the junior lienholder advance to their loan. Send the senior lender a notice which tells them that you are willing to reinstate their loan.

Must I give notice of delinquency to a junior lienholder even if I don’t file an NOD?
No. Junior lienholders may request status of senior lien by doing the following:
Under the California civil code section 2924e, a lender is required to send a notice to a junior lienholder within 15 days after the delinquency reaches four months, when certain conditions exist: the borrower must consent; the junior lienholder must submit the request in writing by certified mail along with $40; the property must contain one to four residential units; the request shall be recorded in the county in which the property is situated; and it has not been longer than five years since the original request, unless a renewal payment of $15 has been made.
Junior lenders who acquire interest by assignment, now have the same rights as the original beneficiary to require senior lenders to provide information regarding delinquencies of four months. The new junior beneficiary must pay a processing fee of $15 to the senior beneficiary. See section 2924e(b).

If my loan is in a senior position, when should I start my foreclosure?
You may have to consider various constraints before you can file a notice of default. Is this a standard Fannie Mae/Freddie Mac document? If it is, you must send the borrower a notice of intent to foreclose 30 days prior to the filing of the NOD. You may have sold the loan to some other lender; they may have certain procedures and standards that you must adhere to, such as asking their permission to foreclose after a suitable effort has been made to work with the borrower to encourage repayment. If your loan is insured, you have be required to follow certain steps in order to be allowed to file a claim with the insurer.
The most important consideration when deciding to start a foreclosure is “Am I well secured if I wait?” If there is adequate protection between the value of your loan and the value of the property, delay should cause no loss. If there is inadequate protection, then every day delayed will cost you money. Choose a trustee who will record your NOD without any unnecessary delays and will stand behind their work.

If my loan is in a junior position, when should I start my foreclosure?
If you service a loan for someone else, if it is insured, or it is a standard FNMA/FHLMC document, then you have the same constraints mentioned in the previous question. Being in junior position adds one other very important dimension for your consideration. The senior lender can foreclose you out of your security or certainly diminish your protection as their loan interest balance grows.
If the senior lender begins foreclosure, and neither you nor the borrower bring them current, the lender could very well go to sale and eliminate your security. It is much better for you to initiate foreclosure early, go to auction, acquire the property and sell it, before the senior lender can complete the foreclosure. Of course, if necessary, you may have to reinstate the first lender to allow enough time for you to complete your foreclosure.

Should I reinstate the senior loan which is in foreclosure, or bid at its sale?
Reinstating the senior loan should require considerably less cash than bidding at its sale. If the loan has matured, then you may pay off the loan prior to the sale or bid at the sale.

If the senior lender filed a notice of default several months earlier, you may be able to save time by bidding at the senior’s sale. However there are some pitfalls to this strategy. The senior may delay his foreclosure; you have no control over when they may go to sale. File your own notice of default as soon as possible so that at least you are proceeding to your own sale. If you intend to bid at the senior’s sale, come to the sale early, bring sufficient certified funds to bid the amount of the debt plus your lien. You cannot credit bid the amount owed to you under your deed of trust; your standing as a bidder is the same as any others. If you fail to arrive on time for the sale, your lien may be eliminated.

Do I need the borrower’s permission to foreclose?
No. You already have their permission; they gave it when they signed the note and deed of trust.

What documents do I need to foreclose?
You will need to provide the trustee with the note and deed of trust, any modification or extension agreements, additional notes and any assignments. If an original document is lost, it may be necessary to provide a lost instrument bond. Consult with your trustee. You also need to provide the trustee with certain essential information, such as the unpaid balance of the note, the date to which the interest is paid, the reason for the default (such as failure to make the payment which became due on a certain date), information regarding any advances you have made, the last known residence or business address of the last known owner, and the property address. If you are not using the original trustee, a substitution of trustee must be signed and notarized by the beneficiary.

Why is an accurate “last known address” of the last known owner vital?
Failure to send notice to an accurate business or residence address of the last known owners may invalidate the foreclosure. Search all your records completely and carefully. If the borrower has more than one loan with your firm, review all sets of records. If the borrowers are married and you receive word from one of them that (s)he is no longer residing at the property address and you are provided with a new address, be sure to communicate that information to the trustee as soon as possible.

How long does it take to foreclose?
If there are no delays, a foreclosure will be completed in about four months. After the recording of the NOD there is a mandatory three-month waiting period before the trustee can publish the notice of trustee’s sale. Generally the sale will take place four weeks after the pre-publication period has ended. The date of the sale is influenced by the county where the property is located, the regular schedule of sales for that county and by the frequency of publication of the newspaper in which the trustee is required to publish. The trustee must also consider the newspaper deadlines for advertising and the time-necessary for preparation of the notice of sale and its delivery to the newspaper. The California Civil Code also requires that the notice of sale be posted on the property and a public place at least 20 days prior to the sale; adequate time must be allowed for this to be completed. If the IRS has recorded a federal tax lien at least 30 days before the sale, they require notification at least 25 days before the sale. If the loan is insured by the Veterans Administration, the sale date must be set to allow time enough for them to provide bid instructions.

Who pays the foreclosure fee and costs?
If the borrower brings the loan current or pays it off, the borrower is responsible to the lender for the foreclosure fee and costs. Since the lender is obligated to pay the trustee, the lender should be sure to not overlook these foreclosure expenses. If the property is sold to an outside bidder at the foreclosure auction, the foreclosure expenses will be paid by the bidder. Only when the lender is the successful bidder at the sale will the lender not be able to look to someone else to recover the trustee’s fee and costs. Hopefully, when the property is resold, the lender can expect to recover their foreclosure expenses.

Do all trustees charge the same?
No. The California Civil Code sets the maximum fee that is deemed to be valid and lawful. A trustee need not charge that maximum amount. The quality of service and the trustee’s financial strength should be of primary concern when selecting a trustee.

What is a Declaration of Default?
This document contains the official written instruction from the beneficiary to the trustee. Most deeds of trust require the beneficiary to furnish the trustee with a Declaration of Default. It identifies the deed of trust to be foreclosed, states the breach, and directs the trustee to sell the property to satisfy the indebtedness.

What is the fastest way to record the NOD? You may send the trustee a pre-signed substitution along with the other documents, or the trustee can prepare one and return it to you for your signature. If you are to be regularly using a trustee, you might consider giving the trustee a limited power of attorney authorizing them to sign the substitution of trustee and the notice of default. Sending pre-signed substitutions or giving a limited power of attorney reduces the time between your decision to foreclose and the actual recording of the notice of default to as little as 24 to 48 hours.

What are the most common delays to the foreclosure process?

The most common delay comes from the filing of bankruptcy.
A temporary restraining order (TRO) is used to preserve the status quo pending a court hearing for a preliminary injunction.
A preliminary injunction is used to preserve the status quo pending a final determination of the action on the merits.
The beneficiary or his servicer doesn’t send the trustee the most current assignment. The trustee prepares the NOD and the substitution with the wrong beneficiary shown. Several days after the documents are recorded the title company discovers the error. The trustee now must rescind the original NOD and re-record new documents. If there is uncertainty regarding the current beneficiary, ask the trustee handling the foreclosure to check with the title company for current information.
The recording information on the deed of trust was incorrect. A copy of the deed of trust has the recording information written incorrectly or the original deed of trust was re-recorded later.
The paid-to-date was incorrect.
The unpaid balance was incorrect.
The last known address was incorrect or incomplete.
Money (partial payment) is accidentally accepted from the borrower.
Instructions are misunderstood. The beneficiary instructs the trustee to cancel the sale rather than postpone, or postpone rather than sell.
The NOD is re-recorded (start-over) because of failure to notify someone.
Correspondence requiring response is accidentally filed rather than handled.
Opening bid information given to the trustee too late to order a date down of the trustee’s sale guarantee.

What law authorizes foreclosures through a trustee’s power of sale?
There is no law that authorizes a trustee’s non-judicial foreclosure; that power is created by the borrower when he signs that deed to trust, pledging the real property as security. The words used in the deed of trust are; “with power of sale.” There are, however, many laws that regulate the trustee. See California Civil Code section 2924.

How does bankruptcy of the borrower affect the foreclosure?
The filing of a petition of bankruptcy by the borrower, by a lessee (tenant) who has a recorded lease, or by the beneficiary of a junior deed of trust, immediately stops the foreclosure, with or without notice. The trustee may not proceed in any way; he may, however, postpone an already scheduled and noticed sale. If the trustee conducts a sale after a bankruptcy is filed, but without any knowledge of it, the sale is void or voidable depending on circumstances. See section 2924j. Before the trustee can continue the foreclosure, the lender must obtain relief from the bankruptcy court. You should seek legal advice immediately from an attorney who specializes in bankruptcy. Relief must terminate the stay against the property of the debtor and the property of the estate in bankruptcy. Relief as to the debtor is not relief as to the estate. The trustee’s sale cannot be held within seven days after the expiration of the stay in bankruptcy unless the court order so provides. See Civil Code section 2924g(d). Attorneys representing lenders in bankruptcy should include as part of their relief orders a statement that a foreclosure sale may occur immediately upon entry of the bankruptcy relief order.

Could a senior lender get relief from the bankruptcy stay and go to sale while the junior lender is still stayed?
Yes. If you are a junior lienholder, notify your attorney as soon as you get word of a bankruptcy. Assist them in every way to get relief before the senior lender does.

Who is entitled to receive a copy of the Notice of Default?
Within ten business days after the NOD records, notice must be mailed by certified/registered mail to the original trustors at the address shown on the deed of trust; the current owners,if known, at their last known business or residence mailing addresses, and to those who have recorded a request for a copy of a Notice of Default. In addition to the required certified/registered mailings, simultaneous mailings must be made by regular, first class mail to the trustors and current owners. See section 2924b(B)(1).
Within one month after the notice of default is recorded, a copy of the NOD must be mailed certified/registered to those entitled to notice under the California Civil Code section 2924b(c)(1), including the current owner of record and those lienholders with a recorded interest.

Does the borrower need actual notice to have a valid foreclosure?
No. The non-judicial foreclosure sections of the California Civil Code were designed to balance the needs of the borrower and lender. The procedure is supposed to be clear and easy to follow so that there is little reason to go into court to argue issues. The notification procedure provides many opportunities for the borrower to receive notice. If they do not make the effort to keep the lender of the trustee informed, they may lose their property without notice. The trustee has no obligation to search for a lost borrower. The borrower can give constructive notice with their current address. See I.E. Assocs., v. Safeco Title Ins. Co. (1985) 39 C3d 281, 216 CR 438.

What is a Trustee’s Sale Guarantee report?
The Trustee’s Sale Guarantee (TSG) report provides the foreclosing trustee with the information necessary to process your foreclosure and guarantees the correctness of that information. It sets forth the record owners and lists all exceptions of record against the secured property. It provides the names of those who are to receive notices and the name of the newspaper in which the trustee must publish. The TSG is provided by a title company in the county where the property is located. When you receive your copy from the trustee, you should be alert to certain items:

New Owners.
Delinquent real estate taxes.
Notice of defaultrecorded by a senior deed of trust. You should contact the senior beneficiary to determine if their loan is still delinquent.
Federal (IRS) tax liens recorded.
Bankruptcy.
Lis Pendens. This provides constructive notice of pending litigation, the outcome of which will not be affected by the foreclosure.
Notice of substandard dwelling.
Any irregularities noted therein.

Who should record a request for a copy of a Notice of Default?
If you are a junior lienholder and have changed you address from that shown on the upper left hand corner of your recorded deed of trust, you should record a request for notice pursuant to Civil Code section 2924b(a) showing your current address. Failure to do this may prevent you from receiving notice of a pending foreclosure on a senior deed of trust. Additionally, if you want a copy of a Notice of Default mailed to you within ten business days of its recording, record a request.

When can I refuse reinstatement?
For NOD’s recorded prior to January 1, 1986, reinstatement is allowed by law (unless the loan has reached full maturity) during the first three months; after the first three months you can refuse reinstatement. For Nod’s recorded after January 1,1986, you may not refuse reinstatement until five business days before the date set for sale or a postponed sale; after that you may refuse reinstatement. See Civil Code section 2924c(e). The standard FNMA/FHLMC deed of trust allows reinstatement by the borrower up to five calendar days before the sale date.

Who is entitled to reinstate the loan?
The trustor and any junior lienholder of record have the right to reinstate the loan. The reinstatement amount should be enough to restore the entire loan to its original installment basis and include attorney fee and costs which were necessary to protect the security, foreclosure fee and costs, late charges, and advances. Contact the trustee for updated fees and costs before accepting reinstatement. A partial payment may not cure the default. Accepting partial payment may invalidate the foreclosure. If you believe it is in your best interest to accept partial payments, consult your attorney regarding a written agreement between you and the borrower.

What costs can be included in the reinstatement or payoff amount?
Money advanced to protect the lender’s security, other than improvement of the property, are allowable. For instance, repairing a leaking roof, that would result in damage and decrease the value of the property, would be allowable. Replacing the whole roof would not be allowable. The costs of collection letters and advice from an attorney in certain instances now appear allowable. See Buck v. Barb 147 CA 3rd 920. Additionally, attorney fees and costs incurred while defending yourself in court or seeking relief from bankruptcy are allowable. Check with your attorney before including any questionable items. Also there are regularly allowable trustee’s costs for recording, mailing, publishing, posting, trustee’s sale guarantee, and one postponement fee of $50 upon the written request of the trustor pursuant to section 2924c(c).

How long does the publication period last?
After the three month pre-publication period has ended, a notice of trustee’s sale is prepared and sent to the newspaper for publication. The first ad must run at least 20 days before the scheduled sale date. The time between the first ad and the sale date is the publication period.

Where is the Notice of Sale published and how often?
The Notice of Sale is published in an adjudicated newspaper of general circulation in the city where the property is located.If there is not a paper adjudicated to run legal notices in that city; then a newspaper in the judicial district may be used.
The Notice of Sale must publish once a week for three weeks with the first ad running no later than 20 days before the sale.

Who is entitled to receive the notice of trustee’s sale?
All parties pursuant to Civil Code section 2924b and (b3).

What should the beneficiary do during the publication period?
During this period the lender should assess their equity position in the property to determine if they should bid less than their total debt.

Am I limited to only three postponements?
The lender or the trustee is limited to three discretionary postponements, after which it is necessary to republish the Notice of Sale. The lender may agree with the borrower to any number of postponements; it is best to get this agreement in writing and signed by the borrower. The sale can be postponed any number of times “by operation of law” or one time only for bankruptcy determination. See section 2924g(c). A Notice of Sale is generally considered stale after one year. It would then be best to re-notice the trustee’s sale.

Must I bid the full indebtedness, plus advances and costs?
No. It is not required and there may be good reasons not to. For instance, it you would like to encourage outside bidders, set the opening bid low and credit bid price upward until you reach your total indebtedness. Another reason that you might want to bid less than the full amount would be to allow for a claim to an insurance company for a casualty loss against the property. If you had bid the full indebtedness, the insurance company could claim that your debt had been fully satisfied. There may also be some tax consequences to consider.

Are the trustee’s sales really held on the steps of the county courthouse?
Yes. Most trustees use the same place to conduct their sales. The most common spot is the front entrance to the county courthouse, city hall, or hall or records. The only requirement by law is that it be conducted in a public place.

Is the trustee’s sale conducted orally or by sealed bid?
The sale is conducted verbally. The trustee will essentially announce that they are offering to sell at public auction to the highest bidder all right, title and interest conveyed to and now held by the described deed of trust. The sale will be made, but without covenant or warranty, express or implied, regarding title, possession or encumbrances. After the auctioneer makes an announcement, they will ask if there are any bidders who wish to qualify. If there are, each must show the auctioneer funds in excess of the opening bid. A junior lienholder must qualify as any other bidder and cannot use their lien for bidding purposes. Nomellini Const. Co. v. Modesto Savings & Loan Assoc. (1969) 275CA2d 114,79 CR 717. The auctioneer will note the total amount of funds each bidder possesses, so that they know when a bidder is no longer qualified to enter a bid. If a bidder tries to enter a bid that exceeds their funds, the auctioneer will ask them to requalify. Each bid is an irrevocable bid and replaces the previous bid. If a bidder reneges, they may be liable to the trustee for damages and subject to criminal prosecution and penalties. The successful bidder is the one who enters the final bid that is accepted by the auctioneer. See sections 2924g and 2924h.

Must I attend the sale and enter my own bid?
No. The trustee’s auctioneer will enter your opening bid on your behalf. However, you may attend the sale and enter your own bid. If you wish to bid more than your total debt due you, it would be necessary for you to appear at the sale with certified funds to cover any bids you make over the amount of your debt.

When am I entitled to possession of the property?
The title a successful bidder receives through a trustee’s deed entitles them to immediate possession. The purchaser may allow the previous owners or tenants to stay or they may bring an unlawful detainer action (eviction) to remove them. However, a lease recorded prior to the recording date of the deed of trust entitles the lease to priority over the title received through the foreclosure. A unrecorded lease, where it was reasonable to assume that a lease existed at the same time the deed of trust was recorded, may provide the same priority as a prior recorded lease. Alternately, if the lease is unrecorded and it was not reasonable to assume that a lease existed at the time the deed of trust was recorded or if the lease was recorded subsequent to the deed of trust which has been foreclosed, the purchaser at the foreclosure sale may choose to evict the tenants or allow the tenants to stay.

Is there a redemption period after the sale?
In a non-judicial sale there is no redemption period for the previous owner or junior lienholders. The Internal Revenue Service (IRS) has a 120-day right of redemption, if it had a properly recorded notice of a federal tax lien subsequent to your deed of trust.

What liens or rights may survive the trustee’s sale?
Failure of the trustee to notify a junior lienholder of record (absent his actual knowledge of the sale) may allow the junior lien to survive. It is as yet unclear under California law whether the buyer can claim “bona fide purchase” status to defeat the junior lien’s attachment. In any event, the junior lien could sue for damages if a BFP’s interest eliminated the junior. An IRS tax lien will not be extinguished for 120 days; during that time the IRS has the right to redeem the property. The rights of a plaintiff in a legal action, who has a properly recorded lis pendens, will survive the trustee’s sale. City and county liens, easements, homeowner’s association assessments, and mechanic’s liens, where the work was begun before the foreclosing deed of trust was recorded, may survive the trustee’s sale. Leases that were recorded prior to the foreclosing deed of trust will survive. An unrecorded lease where it was reasonable to assume that a lease existed may survive. If the foreclosing lender subordinated to a subsequent deed of trust, it will survive. Any liens that were recorded prior to the foreclosing deed of trust (which has not subordinated itself to the foreclosing deed of trust) will survive.

Who gets the over bid surplus?
Any moneys that exceed the foreclosing lender’s total indebtedness, including advances and expenses, will go to junior lienholders of record in the order of priority, and finally to the previous owner of record. If the trustee has doubts about where the moneys should be paid, they should commence an action for interpleader to avoid potential liability.

What happens if I feel sorry for the sold out borrower and deed the property back to them?
If your intent is to replace your original deed of trust with a new one having the same priority…BEWARE. The extinguished junior liens will revive; your new deed of trust will be subordinate. See Jensen v. Duke (1925) 71 Cal. App. 210.

When is the trustee’s sale complete?
The sale is final upon the auctioneer saying “sold” and the sale is deemed perfected as of 8am on the day of sale provided the Trustee’s Deed Upon Sale is recorded within 15 days of the actual sale date.

To find out how you can effectively challenge and save your home when faced with foreclosure challenges visit http://www.fightforeclosure.net

Using Securitization Audits As An Effective Tool For Foreclosure Defense

30 Sunday Jun 2013

Posted by BNG in Affirmative Defenses, Appeal, Federal Court, Foreclosure Defense, Fraud, Litigation Strategies, MERS, Non-Judicial States, Securitization

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Business, Creditor, Foreclosure, MERS, Mortgage Electronic Registration System, Mortgage loan, Real estate, Securitization

By now, most homeowners in foreclosure proceedings were suddenly realizing that most loans originated in between 2000 and 2010 were securitized without the borrower’s knowledge. This means the lenders pooled the mortgage with thousands of others and sold these pooled loans to investors immediately or very shortly after loan origination. They were paid in full but retained loan “servicing”, the day to day loan administration operations, for which they now received between $25 and $45 per year for each $1,000 of loan value. This may have been on top of a profit in the sale. On a $400,000 loan the servicer’s financial interest is now only $10,000, not the $400,000 they are trying to foreclose on.

What’s more, in the process of investors purchasing the loan, the originating lender had to guarantee that all transfers were as laid out in pooling and servicing agreements which are on file with the Securities and Exchange Commission. Any violation and the now “master servicing lender” is under obligation to buy back the loan at full price, a guaranteed loss on a now non-performing loan facing foreclosure.

Based on default servicing agreements the servicing lender can use creative loan accounting to essentially position a defaulted loan to where the servicer receives most of all of the property in a foreclosure and the investor owner gets little or nothing, but the loans were insured and T.A.R.P. monies make the investor whole so they don’t miss the property. The servicer sold the loan for payment in full and now gets the property free and clear because the mortgage was not to them, it was to the investor. Is this fair? No, but it is happening every 15 to 20 seconds in the USA.

So how does an attorney you stop this? They use the evidence process in court to introduce findings of a highly qualified expert that is willing to stand behind the issuance and be an expert witness. To keep those costs down in foreclosure and bankruptcy most judges all expert witnesses to appear in a virtual manner, by phone conference or video conference and in so doing enable this type of support in a case at nominal prices.

The evidential findings are based in undisputed facts that are not objectionable because they address genuine material facts pertinent to the case. These facts include showing many defects that prevent foreclosure and bring to light issues the lender foreclosing wants to hide and has misrepresented. Ownership, improper endorsements, subsequent sales, now bankrupt parties, not including real owners as parties in interest, fraudulent use of MERS, fraudulent and collusion on affidavits, robo-signed documents, illegal deed and trustee assignments underlying improper deed enforcement and much more. Basically anything by which the lender can foreclose because that is the only way to sever the risk of lawsuit by the investors. That is why the investors are not being included in the lawsuit. Should they become aware, there could be a class action and because they bought hundreds of thousands of similar problematic loans, the servicer can inherit tremendous risk and potential losses.

The evidence usually turns up facts that conclude the first party ownership is just not there according to law, at least not a secured mortgage anyway. Unsecured the mortgage debt can be crammed down by a bankruptcy Judge or completely discharged after some years in a quiet title action. Those are the legal aspects left up to lawyers and courts.

Faced with losing in court, lenders typically settle and move on. The number of cases winning in this way is a relatively small number. Settlements include loan modifications of terms, acceptance of short sales, waivers of deficiency judgments and having the case dismissed entirely or crammed down by a bankruptcy judge.

The solution? Simple, affordable and fast. – To find out how you can effectively challenge and win your foreclosure defense using Securitization Audit visit: http://www.fightforeclosure.net

How Robo Signing Violations Can Help Homeowners Save Their Homes

30 Sunday Jun 2013

Posted by BNG in Discovery Strategies, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Non-Judicial States, Notary, Trial Strategies

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Business, Court, Foreclosure, Mortgage law, Mortgage loan, Mortgage servicer, Real estate, United States

The Foreclosure process often involves affidavits, which are documents in which someone attests to a set of facts. Foreclosure affidavits typically involve the mortgage servicer confirming that the foreclosure is valid specifically, that the servicer or mortgage holder has a right to foreclose because the mortgagee has defaulted on the mortgage.

Foreclosure Process and Affidavits

Often, mortgage servicers looking to foreclose ask the court for what is called summary judgment, which means they want the court to rule in their favor without need for a trial based on clear evidence that the foreclosure is in order. To show the court that it should order foreclosure, the servicer or mortgage older typically submits affidavits and other proof (such as the mortgage note) showing who in fact owns the mortgage in question. Foreclosure affidavits also include statements about the status of the mortgage account, such as payment history, what is currently owed, when it went into default and how far behind the mortgagee is.

If the borrower does not contest the foreclosure, many foreclosure cases end at this point, with the judge granting summary judgment for the mortgage servicer. This allows the foreclosure to be executed and the property to be sold.

“Robo-signing” and Foreclosure Affidavits

Affidavits are documents submitted to the court in which a person attests to personal knowledge as to what is contained. This means that the person signing a foreclosure affidavit should have verified all information he or she is stating to be true.

The term “robo-signing” has been coined to describe rapid fire signing of foreclosure affidavits without adequately verifying the truth of what the affidavits state. Mortgage servicers who process very high volumes of mortgages in quick succession have been accused of robo-signing to speed up the foreclosure process.

In cases where the mortgage servicer did not review underlying documentation, foreclosure affidavits signed by the servicer may be challenged as inadequate to prove that foreclosure should occur. In some states, foreclosure affidavits must include copies of all documentation on which the affidavits rely. In these states, failure to include such documentation could also be challenged.

Challenging Foreclosure Affidavits

Typically, the mortgagee can challenge the foreclosure affidavits at the point when the bank or mortgage servicer has requested summary judgment. Citing robo-signing to challenge mortgage affidavits is one way to possible stave off summary judgment. Another way to challenge the affidavits is to challenge any inaccurate information about the mortgage and payment history contained in the affidavits.

Though foreclosure affidavits are often perfectly accurate, sometimes they may contain bad information. One example might be if the affidavits state an inaccurate amount owed or payment history. Often, mortgages have been sold many times, with information as to payment potentially lost in the shuffle. Other times, fees may have been attached to the account improperly.

What Happens Next?

Showing that a mortgage servicer’s foreclosure affidavits are inadequate does not resolve the underlying dispute about the property and whether it will be foreclosed. Lenders and mortgage servicers typically rely on affidavits in order to gain summary judgment in foreclosure actions.

In cases where the affidavits are successfully challenged or found lacking by the court, the borrower may not have won a final victory, but has staved off a final decision. Such borrowers then may face the lender or servicer at trial to resolve whether the property, in fact, may be foreclosed and sold.

To Learn How You Can Effectively Use Solid Arguments Such As Robo Signing To Challenge Your Wrongful Foreclosure Visit: http://www.fightforeclosure.net

Why Every Homeowner Needs To Use RESPA to their advantage

29 Saturday Jun 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Defense, Fraud, Mortgage Laws, Non-Judicial States

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Business, Loan, Loan servicing, Real Estate Settlement Procedures Act, RESPA, Title 12 of the United States Code, United States Code, United States Congress

The Real Estate Settlement Procedures Act (RESPA), was an act passed by the United States Congress in 1974. It is codified at Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§ 2601–2617

RESPA is a consumer protection statute that regulates the real estate settlement process, including servicing of loans and assignment of those loans. See 12 U.S.C. § 2601 (Congressional findings). The statute imposes a number of duties on lenders and loan servicers. Most relevant here are there requirements that borrowers be given notice by both transferor and transferee when their loan is transferred to a new lender or servicer, 12 U.S.C. §§ 2605(b) and (c), and that loan servicers respond promptly to borrowers’ written requests for information, § 2605(e).

The details of the requirement for responding to written requests will become relevant here. First, it takes a “qualified written request” to trigger the loan servicer’s duties under RESPA to acknowledge and respond. The statute defines a qualified written request as written correspondence (other than notices on a payment coupon or similar documents) from the borrower or her agent that requests information or states reasons for the borrower’s belief that the account is in error. 12U.S.C. § 2605(e)(1)(B). To qualify, the written request must also include the name and account of the borrower or must enable the servicer to identify them.

Within 60 days after receiving a qualified written re-quest, the servicer must take one of three actions: either(1) make appropriate corrections to the borrower’s account and notify the borrower in writing of the corrections; (2) investigate the borrower’s account and pro-vide the borrower with a written clarification as to why the servicer believes the borrower’s account to be correct; or (3) investigate the borrower’s account and either provide the requested information or provide an explanation as to why the requested information is unavailable. See 12 U.S.C. §§ 2605(e)(2)(A), (B), and (C). No matter which action the servicer takes, the servicer must provide a name and telephone number of a representative of the servicer who can assist the borrower.

During the 60-day period after a servicer receives a qualified written request relating to a dispute regarding the borrower’s payments, “a servicer may not provide information regarding any overdue payment, owed by such borrower and relating to such period or qualified written request, to any consumer reporting agency.” 12 U.S.C. § 2605(e)(3).

RESPA provides for a private right of action for violations of its requirements. 12 U.S.C. § 2605(f). The provision for a private right of action includes a “safe harbor” provision, which provides in relevant part that a transferee service provider like any lender shall not be liable for a violation of section 2605 if, “within60 days after discovering an error (whether pursuant to a final written examination report or the servicer’s own procedures) and before the commencement of an action under this subsection and the receipt of written notice of the error from the borrower, the servicer notifies the person concerned of the error and makes whatever adjustments are necessary in the appropriate account to ensure that the person will not be required to pay an amount in excess of any amount that the person otherwise would have paid.” 12 U.S.C. § 2605(f)(4).

For more info on how you can use RESPA and its provisions to slow or stop your foreclosure proceedings, please visit http://www.fightforeclosure.net

Fight Your Foreclosure Protect Your Most Valuable Asset

18 Saturday May 2013

Posted by BNG in Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Your Legal Rights

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Business, Colorado, Foreclosure, Home insurance, Investing, Law, Real estate, Services

Homeowners have been the victims in this foreclosure epidemic. In every criminal act there is the criminal and the victim. And like any criminal prosecution, unless the victim comes forward and prosecutes the criminal, the criminal will most likely be set free. So what does this mean? It means that more homeowners need to come forward and fight their foreclosures. There are only a handful of true to the cause advocates that are fighting this fight with an army of pro-se soldiers.

We have now in the homeowners corner, a handful of prosecutors (Senators) that are willing to put the criminals feet to the fire. We have the potential in front of us to give a criminal element to fraudulent foreclosure actions (which it is and should have always been to begin with).

There is a systematic approach I would like to share with homeowners facing foreclosure and attorneys alike that are engaged in foreclosure defense and that is the sales dynamic. See there is a simple philosophy in sales that sales managers train their sales representative to do and follow. Sales is a numbers games so the first rule of sales is (1) the more people you contact the greater your chance at closing a sale. Sales mangers would require reps to make 100 calls a day because out of those 100 calls maybe 10 could be closed.

This is the same approach being used by foreclosure law firm mills. File 100 foreclosure and maybe 10 fight back. This means 90% of their foreclosures go to summary judgment without resistance. To the parties initiating foreclosures these are great statistics. It is for this very reason foreclosure law firm mills charge a flat rate of approximately $1,200 per foreclosure. Any attorney will tell you that they normally charge a retainer of $2,500 to $10,000 to take a case depending on the circumstances surrounding the case at which point they will bill out anywhere from $200 to $350 per hour. Think about that for a second. An attorney that spends 10 hours on your case alone who bills out at say $300 an hour cost $3,000. So what does it say of a foreclosure law firm mill that bills out a flat rate of $1,200 to a multi-million dollar financial institution?

If you can understand the sales philosophy that this is a numbers game with the bets on the homeowner that will not fight to keep their home, then try to understand the adverse affect those initiating these foreclosure actions will face if the homeowner actually defends themselves in litigation. It would mean the foreclosure law firm mills would not be able to charge a flat rate of $1,200 to the banks or servicers. It would mean they would have to charge more money to prosecute these foreclosure suits. Banks don’t want to spend so they would look to other foreclosure mills to represent them which would open up a biding war for their work (which already exist on another level). It would cause the banks to have to spend more money in litigation to defend their fraudulent behavior and their statics of 90% success to straight summary judgment would decrease.

For The Necessary Tools Needed To Effectively and Vigorously Challenge Your Wrongful Foreclosure, Against Those Interlopers Who Are Fraudulently Trying to Steal Your Home From You, Visit http://www.fightforeclosure.net

Foreclosure Deficiency Judgment Nevada Mortgage Laws

17 Friday May 2013

Posted by BNG in Non-Judicial States

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Business, Debt, Deficiency judgment, Florida, Foreclosure, Nevada, Uniform Commercial Code, United States

NEVADA MORTGAGE LAWS:
In this session, we are going to discuss in somewhat greater details the Nevada Mortgage Laws and how to handle the looming foreclosure crisis which has made state of Nevada in the highest ranks in USA. Once we are educated in these laws, our next step should be how to fight and fight back vehemently because banks are not changing their ways and tactics. An educated borrower is the best defense against foreclosure and its aftermath.

NRS 40.430 Action for recovery of debt secured by mortgage or other lien; “action” defined.
Nevada has only One Action Law for the recovery of any debt, or for the enforcement of any right secured by a mortgage or other lien upon real estate. That action must be in accordance with the provisions of NRS 40.430 to 40.459, inclusive. In that action, the judgment must be rendered for the amount found due the plaintiff, and the court, by its decree or judgment, may direct a sale of the encumbered property, or such part thereof as is necessary, and apply the proceeds of the sale as provided in NRS 40.462.

What is One Action Rule of Nevada?
This section must be construed to permit a secured creditor to realize upon the collateral for a debt or other obligation agreed upon by the debtor and creditor when the debt or other obligation was incurred. A sale directed by the court pursuant to subsection 1 must be conducted in the same manner as the sale of real property upon execution, by the sheriff of the county in which the encumbered land is situated, and if the encumbered land is situated in two or more counties, the court shall direct the sheriff of one of the counties to conduct the sale with like proceedings and effect as if the whole of the encumbered land were situated in that county.

What this One Action Rule Does Not Include?
(a) To appoint a receiver for, or obtain possession of, any real or personal collateral for the debt or as provided in NRS 32.015.(b) To enforce a security interest in, or the assignment of, any rents, issues, profits or other income of any real or personal property.
(c) To enforce a mortgage or other lien upon any real or personal collateral located outside of the State which does not, except as required under the laws of that jurisdiction, result in a personal judgment against the debtor.
(d) For the recovery of damages arising from the commission of a tort, including a recovery under NRS 40.750, or the recovery of any declaratory or equitable relief.
(e) For the exercise of a power of sale pursuant to NRS 107.080.
(f) For the exercise of any right or remedy authorized by chapter 104 of NRS or by the Uniform Commercial Code as enacted in any other state.
(g) For the exercise of any right to set off, or to enforce a pledge in, a deposit account pursuant to a written agreement or pledge.
(h) To draw under a letter of credit.
(i) To enforce an agreement with a surety or guarantor if enforcement of the mortgage or other lien has been automatically stayed pursuant to 11 U.S.C. § 362 or pursuant to an order of a federal bankruptcy court under any other provision of the United States Bankruptcy Code for not less than 120 days following the mailing of notice to the surety or guarantor pursuant to subsection 1 of NRS 107.095.
(j) To collect any debt, or enforce any right, secured by a mortgage or other lien on real property if the property has been sold to a person other than the creditor to satisfy, in whole or in part, a debt or other right secured by a senior mortgage or other senior lien on the property.
(k) Relating to any proceeding in bankruptcy, including the filing of a proof of claim, seeking relief from an automatic stay and any other action to determine the amount or validity of a debt.
(l) For filing a claim pursuant to chapter 147 of NRS or to enforce such a claim which has been disallowed.
(m) Which does not include the collection of the debt or realization of the collateral securing the debt.
(n) Pursuant to NRS 40.507 or 40.508.
(o) Which is exempted from the provisions of this section by specific statute.
(p) To recover costs of suit, costs and expenses of sale, attorneys’ fees and other incidental relief in connection with any action authorized by this subsection.

How Mortgage is Defined Under Nevada Laws?
NRS 40.433 “Mortgage or other lien” defined. A “mortgage or other lien” includes a deed of trust, but does not include a lien which arises pursuant to chapter 108 of NRS, pursuant to an assessment under chapter 116, 117, 119A or 278A of NRS or pursuant to a judgment or decree of any court of competent jurisdiction.

The Judicial Proceedings Are An Affirmative Defense
1. The commencement of or participation in a judicial proceeding in violation of NRS 40.430 does not forfeit any of the rights of a secured creditor in any real or personal collateral, or impair the ability of the creditor to realize upon any real or personal collateral, if the judicial proceeding is:
(a) Stayed or dismissed before entry of a final judgment; or
(b) Converted into an action which does not violate NRS 40.430.
2. If the provisions of NRS 40.430 are timely interposed as an affirmative defense in such a judicial proceeding, upon the motion of any party to the proceeding the court shall:
(a) Dismiss the proceeding without prejudice; or
(b) Grant a continuance and order the amendment of the pleadings to convert the proceeding into an action which does not violate NRS 40.430.
3. The failure to interpose, before the entry of a final judgment, the provisions of NRS 40.430 as an affirmative defense in such a proceeding waives the defense in that proceeding. Such a failure does not affect the validity of the final judgment, but entry of the final judgment releases and discharges the mortgage or other lien.
4. As used in this section, “final judgment” means a judgment which imposes personal liability on the debtor for the payment of money and which may be appealed under the Nevada Rules of Appellate Procedure.

How Surplus Money is Distributed?
NRS 40.440 Disposition of surplus money. If there is surplus money remaining after payment of the amount due on the mortgage or other lien, with costs, the court may cause the same to be paid to the person entitled to it pursuant to NRS 40.462, and in the meantime may direct it to be deposited in court.

FORECLOSURE SALES AND DEFICIENCY JUDGMENTS
I have been asked about deficiency judgment many times. In Nevada, the time period for filing a deficiency judgment by your lender is only 6 months. Recently the Nevada legislature also reduced the time period to six months of any HELOC or second trust deed. Now, these folks cannot file any deficiency judgment if the right has been accrued more than six months. Also, if a collection agency buys any of these loans, they cannot collect more than what they paid for.However, they can file this deficiency judgment and can enforce it later against you. This is a concise summary of all of the laws of deficiency judgment. Please read carefully and seek the help of a licensed attorney before doing anything or filing any action.

What is an Indebtedness?
NRS 40.451 “Indebtedness” defined. “indebtedness” means the principal balance of the obligation secured by a mortgage or other lien on real property, together with all interest accrued and unpaid prior to the time of foreclosure sale, all costs and fees of such a sale, all advances made with respect to the property by the beneficiary, and all other amounts secured by the mortgage or other lien on the real property in favor of the person seeking the deficiency judgment. Such amount constituting a lien is limited to the amount of the consideration paid by the lienholder.

NRS 40.453 Waiver of rights in documents relating to sale of real property against public policy and unenforceable; exception. Except as otherwise provided in NRS 40.495:
1. It is hereby declared by the Legislature to be against public policy for any document relating to the sale of real property to contain any provision whereby a mortgagor or the grantor of a deed of trust or a guarantor or surety of the indebtedness secured thereby, waives any right secured to him by the laws of this state.
2. A court shall not enforce any such provision.

How Deficiency Judgment is Awarded?
NRS 40.455 Deficiency judgment: Award to judgment creditor or beneficiary of deed of trust.
1. Upon application of the judgment creditor or the beneficiary of the deed of trust within 6 months after the date of the foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively, and after the required hearing, the court shall award a deficiency judgment to the judgment creditor or the beneficiary of the deed of trust if it appears from the sheriff’s return or the recital of consideration in the trustee’s deed that there is a deficiency of the proceeds of the sale and a balance remaining due to the judgment creditor or the beneficiary of the deed of trust, respectively.
2. If the indebtedness is secured by more than one parcel of real property, more than one interest in the real property or more than one mortgage or deed of trust, the 6-month period begins to run after the date of the foreclosure sale or trustee’s sale of the last parcel or other interest in the real property securing the indebtedness, but in no event may the application be filed more than 2 years after the initial foreclosure sale or trustee’s sale.

What is the Procedure for a Hearing of a Deficiency Judgment in Nevada? NRS 40.457 1.

Before awarding a deficiency judgment under NRS 40.455, the court shall hold a hearing and shall take evidence presented by either party concerning the fair market value of the property sold as of the date of foreclosure sale or trustee’s sale. Notice of such hearing shall be served upon all defendants who have appeared in the action and against whom a deficiency judgment is sought, or upon their attorneys of record, at least 15 days before the date set for hearing.

2. Upon application of any party made at least 10 days before the date set for the hearing the court shall, or upon its own motion the court may, appoint an appraiser to appraise the property sold as of the date of foreclosure sale or trustee’s sale. Such appraiser shall file with the clerk his appraisal, which is admissible in evidence. The appraiser shall take an oath that he has truly, honestly and impartially appraised the property to the best of his knowledge and ability. Any appraiser so appointed may be called and examined as a witness by any party or by the court. The court shall fix a reasonable compensation for the appraiser, but his fee shall not exceed similar fees for similar services in the county where the encumbered land is situated.
NRS 40.459 Limitations on amount of money judgment. After the hearing, the court shall award a money judgment against the debtor, guarantor or surety who is personally liable for the debt. The court shall not render judgment for more than:

1. The amount by which the amount of the indebtedness which was secured exceeds the fair market value of the property sold at the time of the sale, with interest from the date of the sale; or
2. The amount which is the difference between the amount for which the property was actually sold and the amount of the indebtedness which was secured, with interest from the date of sale, whichever is the lesser amount.

NRS 40.462 Distribution of proceeds of foreclosure sale.
1. Except as otherwise provided by specific statute, this section governs the distribution of the proceeds of a foreclosure sale. The provisions of NRS 40.455, 40.457 and 40.459 do not affect the right to receive those proceeds, which vests at the time of the foreclosure sale. The purchase of any interest in the property at the foreclosure sale, and the subsequent disposition of the property, does not affect the right of the purchaser to the distribution of proceeds pursuant to paragraph (c) of subsection 2 of this section, or to obtain a deficiency judgment pursuant to NRS 40.455, 40.457 and 40.459.
2. The proceeds of a foreclosure sale must be distributed in the following order of priority:
(a) Payment of the reasonable expenses of taking possession, maintaining, protecting and leasing the property, the costs and fees of the foreclosure sale, including reasonable trustee’s fees, applicable taxes and the cost of title insurance and, to the extent provided in the legally enforceable terms of the mortgage or lien, any advances, reasonable attorney’s fees and other legal expenses incurred by the foreclosing creditor and the person conducting the foreclosure sale.
(b) Satisfaction of the obligation being enforced by the foreclosure sale.
(c) Satisfaction of obligations secured by any junior mortgages or liens on the property, in their order of priority.
(d) Payment of the balance of the proceeds, if any, to the debtor or his successor in interest.
If there are conflicting claims to any portion of the proceeds, the person conducting the foreclosure sale is not required to distribute that portion of the proceeds until the validity of the conflicting claims is determined through inter-pleader or otherwise to his satisfaction.
3. A person who claims a right to receive the proceeds of a foreclosure sale pursuant to paragraph (c) of subsection 2 must, upon the written demand of the person conducting the foreclosure sale, provide:
(a) Proof of the obligation upon which he claims his right to the proceeds; and
(b) Proof of his interest in the mortgage or lien, unless that proof appears in the official records of a county in which the property is located.
Such a demand is effective upon personal delivery or upon mailing by registered or certified mail, return receipt requested, to the last known address of the claimant. Failure of a claimant to provide the required proof within 15 days after the effective date of the demand waives his right to receive those proceeds.
4. As used in this section, “foreclosure sale” means the sale of real property to enforce an obligation secured by a mortgage or lien on the property, including the exercise of a trustee’s power of sale pursuant to NRS 107.080.
NRS 40.463 Agreement for assistance in recovering proceeds of foreclosure sale due to debtor or successor in interest; requirements for enforceable agreement; fee must be reasonable.
1. Except as otherwise provided in this section, a debtor or his successor in interest may enter into an agreement with a third party that provides for the third party to assist in the recovery of any balance of the proceeds of a foreclosure sale due to the debtor or his successor in interest pursuant to paragraph (d) of subsection 2 of NRS 40.462.
2. An agreement pursuant to subsection 1:
(a) Must:
(1) Be in writing;
(2) Be signed by the debtor or his successor in interest; and
(3) Contain an acknowledgment of the signature of the debtor or his successor in interest by a notary public; and
(b) May not be entered into less than 30 days after the date on which the foreclosure sale was conducted.
3. Any agreement entered into pursuant to this section that does not comply with subsection 2 is void and unenforceable.
4. Any fee charged by a third party for services provided pursuant to an agreement entered into pursuant to this section must be reasonable. A fee that exceeds $2,500, excluding attorney’s fees and costs, is presumed to be unreasonable. A court shall not enforce an obligation to pay any unreasonable fee, but may require a debtor to pay a reasonable fee that is less than the amount set forth in the agreement.
5. A third party may apply to the court for permission to charge a fee that exceeds $2,500. Any third party applying to the court pursuant to this subsection has the burden of establishing to the court that the fee is reasonable.
6. This section does not preclude a debtor or his successor in interest from contesting the reasonableness of any fee set forth in an agreement entered into pursuant to this section.
7. As used in this section:
(a) “Creditor” means a person due an obligation being enforced by a foreclosure sale conducted pursuant to NRS 40.451 to 40.463, inclusive.
(b) “Debtor” means a person, or the successor in interest of a person, who owes an obligation being enforced by a foreclosure sale conducted pursuant to NRS 40.451 to 40.463, inclusive.
(c) “Third party” means a person who is neither the debtor nor the creditor of a particular obligation being enforced by a foreclosure sale conducted pursuant to NRS 40.451 to 40.463, inclusive.

RIGHTS OF GUARANTOR, SURETY OR OBLIGOR IN REAL PROPERTY

NRS 40.465 “Indebtedness” defined. As used in NRS 40.475, 40.485 and 40.495, “indebtedness” means the principal balance of the obligation, together with all accrued and unpaid interest, and those costs, fees, advances and other amounts secured by the mortgage or lien upon real property.
NRS 40.475 Remedy against mortgagor or grantor; assignment of creditor’s rights to guarantor, surety or obligor. Upon full satisfaction by a guarantor, surety or other obligor, other than the mortgagor or grantor of a deed of trust, of the indebtedness secured by a mortgage or lien upon real property, the paying guarantor, surety or other obligor is entitled to enforce every remedy which the creditor then has against the mortgagor or grantor of the mortgage or lien upon real property, and is entitled to an assignment from the creditor of all of the rights which the creditor then has by way of security for the performance of the indebtedness.
NRS 40.485 Interest in proceeds of secured indebtedness upon partial satisfaction of indebtedness. Immediately upon partial satisfaction by a guarantor, surety or other obligor, other than the mortgagor or grantor of a deed of trust, of the indebtedness secured by a mortgage or lien upon real property, the paying guarantor, surety or other obligor automatically, by operation of law and without further action, receives an interest in the proceeds of the indebtedness secured by the mortgage or lien to the extent of the partial satisfaction, subject only to the creditor’s prior right to recover the balance of the indebtedness owed by the mortgagor or grantor.

NRS 40.495 Waiver of rights; separate action to enforce obligation; available defenses.
1. The provisions of NRS 40.475 and 40.485 may be waived by the guarantor, surety or other obligor only after default.
2. Except as otherwise provided in subsection 4, a guarantor, surety or other obligor, other than the mortgagor or grantor of a deed of trust, may waive the provisions of NRS 40.430. If a guarantor, surety or other obligor waives the provisions of NRS 40.430, an action for the enforcement of that person’s obligation to pay, satisfy or purchase all or part of an indebtedness or obligation secured by a mortgage or lien upon real property may be maintained separately and independently from:
(a) An action on the debt;
(b) The exercise of any power of sale;
(c) Any action to foreclose or otherwise enforce a mortgage or lien and the indebtedness or obligations secured thereby; and
(d) Any other proceeding against a mortgagor or grantor of a deed of trust.
3. If the obligee maintains an action to foreclose or otherwise enforce a mortgage or lien and the indebtedness or obligations secured thereby, the guarantor, surety or other obligor may assert any legal or equitable defenses provided pursuant to the provisions of NRS 40.451 to 40.463, inclusive.
4. The provisions of NRS 40.430 may not be waived by a guarantor, surety or other obligor if the mortgage or lien:
(a) Secures an indebtedness for which the principal balance of the obligation was never greater than $500,000;
(b) Secures an indebtedness to a seller of real property for which the obligation was originally extended to the seller for any portion of the purchase price;
(c) Is secured by real property which is used primarily for the production of farm products as of the date the mortgage or lien upon the real property is created; or
(d) Is secured by real property upon which:
(1) The owner maintains his principal residence;
(2) There is not more than one residential structure; and
(3) Not more than four families reside.

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Foreclosure Deficiency Judgment Nevada Mortgage Laws

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1) Only owner-occupied homes are eligible under the law

7). Lenders must have someone at the mediation or available with the authority to modify a loan

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